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General Rule-making Instrument No. 119

GENERAL MODULE (GEN) INSTRUMENT (NO 119) 2013

The Board of the Dubai Financial Services Authority in the exercise of the
powers conferred on them by Article 23 of the Regulatory Law 2004, hereby
make the Rules in the appendix to this instrument. The appendix to this
instrument also contains the guidance made by the Chief Executive in the
exercise of the powers conferred on him under the Regulatory Law 2004.

Commencement:

(1) This instrument is made on 13 June 2013 and shall come into force on 14
July 2013.

Amendments to Modules:

(2) The General (GEN) module – (GEN/VER32/12-12) is repealed and replaced
by Appendix 1 to this instrument and may be identified by the following
reference – (GEN/VER33/07-13).

Citation:

(3) This instrument may be cited as the General Rule-making Instrument (No.
119) 2013.

(4) Appendix 1 to this instrument may be cited as the General module or GEN.

By Order of the Board

Saeb Eigner Ian Johnston
Chairman Chief Executive
13 June 2013
RM119/2013

GEN/VER33/07-13

The DFSA Rulebook

General Module

(GEN)

GENERAL (GEN)

GEN/VER33/07-13

Contents

The contents of this module are divided into the following chapters, sections and
appendices:
1 INTRODUCTION ……………………………………………………………………………. 1
1.1 Application ………………………………………………………………………………………………. 1
1.2 Overview of the module …………………………………………………………………………….. 1
2 FINANCIAL SERVICES ………………………………………………………………….. 3
2.1 Application ………………………………………………………………………………………………. 3
2.2 Financial Service activities ………………………………………………………………………… 3
2.3 By way of business …………………………………………………………………………………… 6
2.4 Accepting deposits …………………………………………………………………………………… 8
2.5 Providing credit ………………………………………………………………………………………… 8
2.6 Providing money services …………………………………………………………………………. 8
2.7 Dealing in investments as principal …………………………………………………………….. 9
2.8 Dealing in investments as agent ………………………………………………………………… 9
2.9 Arranging credit or deals in investments ……………………………………………………. 10
2.10 Managing assets ……………………………………………………………………………………. 11
2.11 Advising on financial products or credit ……………………………………………………… 12
2.12 Managing a collective investment fund ……………………………………………………… 13
2.13 Providing custody …………………………………………………………………………………… 13
2.14 Arranging custody ………………………………………………………………………………….. 14
2.15 Effecting contracts of insurance ……………………………………………………………….. 14
2.16 Carrying out contracts of insurance …………………………………………………………… 15
2.17 Operating an exchange …………………………………………………………………………… 15
2.18 Operating a clearing house ……………………………………………………………………… 15
2.19 Insurance intermediation …………………………………………………………………………. 17
2.20 Insurance management …………………………………………………………………………… 18
2.21 Managing a profit sharing investment account ……………………………………………. 18
2.22 Operating an alternative trading system …………………………………………………….. 19
2.23 Providing Trust Services …………………………………………………………………………. 19
2.24 Providing fund administration …………………………………………………………………… 20

2.25 Acting as the Trustee of a Fund ……………………………………………………………….. 21
2.26 Operating a Representative Office ……………………………………………………………. 21
2.27 Operating a Credit Rating Agency …………………………………………………………….. 22
3. FINANCIAL PROMOTIONS ………………………………………………………….. 24
3.1 Application …………………………………………………………………………………………….. 24
3.2 Overview ………………………………………………………………………………………………. 24
3.3 Definition of a Financial Product ……………………………………………………………….. 25
3.4 Scope of the Financial Promotions Prohibition ……………………………………………. 25
3.5 Additional Rules for Financial Promotions ………………………………………………….. 27
3.6 Approval of Financial Promotions by an Authorised Firm …………………………….. 28

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4 CORE PRINCIPLES …………………………………………………………………….. 29
4.1 Principles for Authorised Firms – application ……………………………………………… 29
4.2 The Principles for Authorised Firms ………………………………………………………….. 30
4.3 Principles for Authorised Individuals – application ………………………………………. 32
4.4 The Principles for Authorised Individuals …………………………………………………… 32
5 MANAGEMENT, SYSTEMS AND CONTROLS ……………………………….. 34
5.1 Application …………………………………………………………………………………………….. 34
5.2 Allocation of significant responsibilities ……………………………………………………… 34
5.3 Systems and controls ……………………………………………………………………………… 35
6 GENERAL PROVISIONS ……………………………………………………………… 47
6.1 Application …………………………………………………………………………………………….. 47
6.2 Interpreting the rulebook …………………………………………………………………………. 47
6.3 Emergency ……………………………………………………………………………………………. 48
6.4 Disclosure of regulatory status …………………………………………………………………. 48
6.5 Location of offices ………………………………………………………………………………….. 49
6.6 Close links …………………………………………………………………………………………….. 49
6.7 Complaints against the DFSA ………………………………………………………………….. 50
6.8 Public register ………………………………………………………………………………………… 50
6.9 Communication with the DFSA ………………………………………………………………… 50
7 AUTHORISATION ……………………………………………………………………….. 51
7.1 Application …………………………………………………………………………………………….. 51
7.2 Application for a Licence …………………………………………………………………………. 51
7.3 Application for an endorsement for Retail Clients ……………………………………….. 55
7.4 Licensed Functions and Authorised individuals ………………………………………….. 55
7.5 Mandatory appointments …………………………………………………………………………. 57
7.6 Application for Authorised Individual status ………………………………………………… 60
8 ACCOUNTING AND AUDITING …………………………………………………….. 63
8.1 Application …………………………………………………………………………………………….. 63
8.2 Accounting standards ……………………………………………………………………………… 63
8.3 Accounting records and regulatory returns ………………………………………………… 63
8.4 Appointment and termination of auditors ……………………………………………………. 64
8.5 Co-operation with auditors ………………………………………………………………………. 65
8.6 Function of the auditor …………………………………………………………………………….. 66
8.7 Registration of Auditors …………………………………………………………………………… 69
8.8 Regulatory appeals ………………………………………………………………………………… 70
8.9 Obligations of Auditors and Audit Principals ………………………………………………. 71
8.10 Notification of changes ……………………………………………………………………………. 71
8.11 Books and records …………………………………………………………………………………. 72
8.12 Withdrawal of registration ………………………………………………………………………… 72
8.13 Withdrawal on the DFSA’s initiative ………………………………………………………….. 73
8.14 Suspension by the DFSA ………………………………………………………………………… 74
8.15 Continuing professional development ……………………………………………………….. 75
8.16 Deleted …………………………………………………………………………………………………. 75
8.17 Professional indemnity insurance ……………………………………………………………… 75

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8.18 Register of Auditors ………………………………………………………………………………… 76
9 COMPLAINTS HANDLING AND DISPUTE RESOLUTION ……………….. 77
9.1 Application …………………………………………………………………………………………….. 77
9.2 Complaints handling procedures for Retail Clients ……………………………………… 77
9.3 Complaints recording procedures for Professional Clients …………………………… 80
10 TRANSITIONAL RULES ………………………………………………………………. 81
10.1 Application …………………………………………………………………………………………….. 81
10.2 General …………………………………………………………………………………………………. 82
10.3 Specific relief – COB Module …………………………………………………………………… 82
10.4 Not currently in use ………………………………………………………………………………… 83
10.5 Specific relief – IFR Module …………………………………………………………………….. 83
10.6 Specific relief – Designated Investments …………………………………………………… 83
10.7 Specific relief – Corporate governance and remuneration related
enhancements ……………………………………………………………………………………….. 83
10.8 Specific relief – IFR Module – Accounting Standards …………………………………… 84
10.9 Specific relief – ENF Module ……………………………………………………………………. 84
11 SUPERVISION …………………………………………………………………………….. 85
11.1 Information gathering and DFSA access to information ……………………………….. 85
11.2 Waivers ………………………………………………………………………………………………… 86
11.3 Application to change the scope of a Licence …………………………………………….. 87
11.4 Withdrawal of a Licence at an Authorised Firm’s request …………………………….. 87
11.5 Changes to an authorised individual status ………………………………………………… 88
11.6 Temporary cover ……………………………………………………………………………………. 88
11.7 Dismissal or resignation of an Authorised Individual ……………………………………. 89
11.8 Changes relating to control ……………………………………………………………………… 89
11.9 Creation of additional cells of a protected cell company for an Insurer …………… 97
11.10 Notifications …………………………………………………………………………………………… 98
11.11 Provision of notifications and reports ………………………………………………………. 106
11.12 Requirement to provide a report ……………………………………………………………… 106
11.13 Imposing Restrictions on an Authorised Person’s business or on an
Authorised Person dealing with property ………………………………………………….. 108
App1 DEPOSITS ………………………………………………………………………………… 110
A1.1 Definition of a deposit ……………………………………………………………………………. 110
App2 INVESTMENTS ………………………………………………………………………….. 112
A2.1 General definition of investments ……………………………………………………………. 112
A2.2 Definitions of specific securities ……………………………………………………………… 113
A2.3 Definitions of specific derivatives ……………………………………………………………. 115
A2.4 Financial instrument declared as an investment ……………………………………….. 117
App3 BEST PRACTICE RELATING TO CORPORATE GOVERNANCE
AND REMUNERATION ………………………………………………………………. 119

A3.1 Best practice relating to corporate governance …………………………………………. 119

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A3.2 Best practice relating to remuneration ……………………………………………………… 121
App4 CONTRACTS OF INSURANCE …………………………………………………… 124
A4.1 Definition of a contract of insurance ………………………………………………………… 124
App5 TRADE REPOSITORY ……………………………………………………………….. 127
A5.1 Requirements applicable to Trade Repositories ……………………………………….. 127

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1 GEN/VER33/07-13
1 INTRODUCTION

1.1 Application

1.1.1 This module (GEN) applies to every Person to whom the Regulatory Law
2004 or Markets Law 2012 applies and to the same extent in relation to every
such Person as that law, except to the extent that a provision of GEN
provides for a narrower application.

Guidance

Pursuant to the application provisions in each chapter, only chapters 1 to 3 inclusive of GEN
apply to a Representative Office.

1.2 Overview of the module

Guidance

1. Chapter 2 prescribes, pursuant to Article 41(2) of the Regulatory Law 2004, the
activities which constitute a Financial Service and, pursuant to Article 42(1) of the
Regulatory Law 2004, the kind of Financial Services that may be carried on by
Authorised Firms and Authorised Market Institutions. It also specifies various
exclusions in relation to the ‘by way of business’ requirement and, where applicable,
in relation to each Financial Service. Further, the appendices contain detailed
definitions of what constitutes a Deposit, Investment, Collective Investment Fund
and Contract of Insurance.

2. Chapter 3 sets out the requirements for a Person making or intending to make a
Financial Promotion in or from the DIFC.

3. Chapter 4 sets out the Principles for Authorised Firms and Authorised Individuals.

4. Chapter 5 specifies the requirements upon senior management to implement effective
systems and controls. There are also requirements upon the Authorised Firm to
apportion material responsibility among its senior management.

5. Chapter 6 contains mainly guidance in respect of: interpretation of the Rulebook,
emergency procedures, disclosure, the location of offices, close links, complaints
against the DFSA and the public register.

6. Chapter 7 specifies DFSA’s authorisation requirements for any applicant intending to
become an Authorised Firm or Authorised Individual.

7. Chapter 8 specifies, in relation to Authorised Persons, the auditing and accounting
requirements which deal with such matters as the appointment and termination of
auditors, accounts and regulatory returns and the functions of an auditor. There are
also requirements for auditors to register with the DFSA.

8. Chapter 9 prescribes the manner in which an Authorised Firm must handle
Complaints made against it by Retail Clients or Professional Clients.

9. Chapter 10 contains two sets of Transitional Rules.

a. Rules 10.1.2 and sections 10.2, 10.3, 10.4 and 10.5 impact on various modules of
the Rulebook, particularly COB and CIR. These Rules enable Authorised Firms
to make a smooth transition to the Current Regime that came into force on 1 July
2008 under Rulemaking Instrument No 56, following the DFSA’s “Key Policy

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Review” outlined in Consultation Paper 52. They also provide for the continued
application of some of the provisions of the Previous Regime under the Current
Regime; and

b. Section 10.6 contains Transitional Rules that allow, with effect from 4 January
2009:

i. an Authorised Person to carry on a Financial Service in respect of a
Designated Investment as if that Designated Investment were a Structured
Product; and

ii. a Designated Investment included in an Official List of Securities before
that date to continue to be a listed Structured Product,

10. Chapter 11 specifies the DFSA’s supervisory requirements for any Authorised Person
being regulated by the DFSA.

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2 FINANCIAL SERVICES

2.1 Application

2.1.1 This chapter applies to every Person to whom the Regulatory Law 2004
applies, and to the same extent in relation to every such Person as that law.

2.2 Financial Service activities

2.2.1 An activity constitutes a Financial Service under the Regulatory Law 2004
and these Rules where:

(a) it is an activity specified in Rule 2.2.2; and

(b) such activity is carried on by way of business in the manner described
in section 2.3.

2.2.2 The following activities are specified for the purposes of Rule 2.2.1:

(a) Accepting Deposits;

(b) Providing Credit;

(c) Providing Money Services;

(d) Dealing in Investments as Principal;

(e) Dealing in Investments as Agent;

(f) Arranging Credit or Deals in Investments;

(g) Managing Assets;

(h) Advising on Financial Products or Credit;

(i) Managing a Collective Investment Fund;

(j) Providing Custody;

(k) Arranging Custody;

(l) Effecting Contracts of Insurance;

(m) Carrying Out Contracts of Insurance;

(n) Operating an Exchange;

(o) Operating a Clearing House;

(p) Insurance Intermediation;

(q) Insurance Management;

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4 GEN/VER33/07-13

(r) Managing a Profit Sharing Investment Account;

(s) Operating an Alternative Trading System;

(t) Providing Trust Services;

(u) Providing Fund Administration;

(v) Acting as the Trustee of a Fund;

(w) Operating a Representative Office; and

(x) Operating a Credit Rating Agency.

Guidance

Note that the ambit of these activities in Rule 2.2.2 may be restricted under COB, AMI or
REP and may be fettered by the continuing operation of the Federal Law.

2.2.3 Each activity specified in Rule 2.2.2:

(a) is to be construed in the manner provided under these Rules; and

(b) is subject to exclusions under these Rules which may apply to such an
activity.

Permitted Financial Services for Authorised Firms

2.2.4 Pursuant to Article 42(1)(a) of the Regulatory Law 2004 an Authorised Firm,
subject to the Rules, may carry on any one or more Financial Services other
than Providing Money Services.

2.2.5 The Financial Services of Effecting Contracts of Insurance and Carrying Out
Contracts of Insurance may be carried on only by an Authorised Firm which
by virtue of its Licence is permitted to carry on such Financial Services and no
other Financial Services.

2.2.6 The Financial Service of Managing a Profit Sharing Investment Account may
be carried on only by an Authorised Firm which by virtue of an appropriate
endorsement on its Licence is permitted to conduct Islamic Financial
Business.

2.2.7 The Financial Service of Managing a Collective Investment Fund may be
carried on in respect of an Islamic Fund only by an Operator which by virtue
of an appropriate endorsement on its Licence is permitted to conduct Islamic
Financial Business.

2.2.8 A Financial Service may be carried on with or for a Retail Client only by an
Authorised Firm which is permitted to do so by endorsement on its Licence.

2.2.9 An Authorised Firm which is licenced to carry on the Financial Service of
Operating a Representative Office may not be licenced to carry on any other
Financial Service.

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2.2.10 An Authorised Firm (other than a Representative Office) may carry on an
activity of the kind described in Rule 2.26.1 that constitutes marketing without
the need for any additional authorisation to do so.

Permitted Financial Services for Authorised Market Institutions

2.2.11 Pursuant to Article 42(1)(b) of the Regulatory Law 2004 and subject to Rule
2.2.12, an Authorised Market Institution may carry on any one or more of the
following Financial Services:

(a) Operating an Exchange;

(b) Operating a Clearing House; or

(c) Operating an Alternative Trading System to the extent that such
activities constitute operating a Multilateral Trading Facility as defined
in Rule 2.22.1(1)(a).

2.2.12 The Financial Service of Operating an Alternative Trading System, to the
extent that such activities constitute operating a Multilateral Trading Facility,
may be carried on by an Authorised Market Institution which is permitted to do
so by an endorsement on its Licence.

Other permitted activities

2.2.13 (1) The activity of maintaining a Trade Repository may be carried on by
an Authorised Person which is permitted to do so by an endorsement
on its Licence.

(2) In (1), a Trade Repository is a centralised registry that maintains an
electronic database containing records of transactions in Investments
and over-the-counter derivatives.

Guidance

1. Maintaining a Trade Repository is not a separately licensed Financial Service, but
may be carried on by an Authorised Person which has on its Licence an endorsement
permitting it to do so. An Authorised Person maintaining a Trade Repository is
subject to some specific requirements relating to that activity, which are set out in
App 5.

2. The functions of a Trade Repository promote increased transparency and integrity of
information, particularly for centrally clearing over-the-counter derivatives.
Currently there are no transaction reporting requirements in the DIFC which require
reporting to Trade Repositories.

3. An Authorised Person does not carry on the activities of a Trade Repository to the
extent that it maintains records of transactions pursuant to the record keeping
requirements applicable to that firm (such as those relating to transactions carried out
on behalf of its Clients by an Authorised Firm, or transactions carried out on the
facilities of an Authorised Market Institution).

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2.3 By way of business

2.3.1 Subject to Rules 2.3.2 and 2.3.3, for the purpose of these Rules a Person
carries on an activity by way of business if the Person:

(a) engages in the activity in a manner which in itself constitutes the
carrying on of a business;

(b) holds himself out as willing and able to engage in that activity; or

(c) regularly solicits other Persons to engage with him in transactions
constituting that activity.

Exclusions

2.3.2 (1) Subject to Rule 2.3.5, a Person does not carry on an activity specified
under paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (j), (k), (p), (q) and
(r) of Rule 2.2.2 by way of business if:

(a) the Person enters into transactions solely as a nominee for
another Person and is bound to and does act on that other
Person’s instructions;

(b) the Person is a Body Corporate and carries on that activity
solely as principal with or for other Bodies Corporates:

(i) which are within the same Group as that Person; or

(ii) which are or propose to become participators in a joint
enterprise and the transaction is entered into for the
purposes of or in connection with that enterprise;

and for the purposes of the activities specified in paragraphs
(g), (j), (k) and (r) of Rule 2.2.2 the assets in question belong to
a Body Corporate falling within (i) or (ii); or

(c) the Person carries on the activity solely for the purposes of or
in connection with the sale of goods or the supply of services
to a customer of the Person or a member of the same Group,
provided that:

(i) the supplier’s main business is to sell goods or supply
services and not to carry on any Financial Service; and

(ii) the customer is not an individual;

and for the purposes of the activities specified in paragraphs
(g), (j), (k) and (r) of Rule 2.2.2 the assets in question belong to
that customer or member.

(2) A Person who is a Body Corporate does not carry on the activity
specified under paragraph (d) or (e) of Rule 2.2.2 by way of business,
if:

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(a) the Person carries on such activities as a member of an
Authorised Market Institution or Recognised Body;

(b) the Person carries on such activities for its own account or for
another Body Corporate which is in the same Group as the
Person, provided that any such member of the Group for which
the Person acts is a wholly-owned Subsidiary of a Holding
Company within the Group or is the Holding Company itself;

(c) the Person restricts such activities to transactions involving or
relating only to Commodity Derivatives on that Authorised
Market Institution or Recognised Body;

(d) the main business of the Person is dealing in relation to
Commodity Derivatives; and

(e) the Person is not part of a Group whose main business is the
provision of financial services.

2.3.3 A Person does not carry on an activity specified under paragraphs (d), (e), (f)
or (h) of Rule 2.2.2 by way of business if the activity is carried on solely for
the purposes of or in connection with the acquisition or disposal of Shares in
a Body Corporate, other than an Investment Company or Investment Limited
Liability Partnership, provided that:

(a) such Shares carry at least 50% of the voting rights or the acquisition
will take an existing holding to at least 50%; or

(b) the object of the transaction may reasonably be regarded as being the
acquisition of day to day control of the Body Corporate; and

(c) he is to enter as principal into the transaction.

2.3.4 (1) A Person who is a Trustee does not carry on an activity specified
under paragraphs (d), (g), and (j) of Rule 2.2.2 by way of business in
circumstances where he is acting as a trustee.

(2) A Person who is an individual does not carry on an activity specified
under paragraph (t) by way of business where he is acting as trustee,
enforcer or protector or where he is arranging for a Person to act as
trustee, in respect of less than three (3) trusts.

2.3.5 (1) A Person does not carry on an activity specified under paragraphs (d),
(e), (f), (g), (h), (i), (j), (k), (p), (t), (u) and (v) of Rule 2.2.2 by way of
business if:

(a) that Person is the holder of a licence under the SFO Regulations
to establish a Single Family Office in the DIFC; and

(b) the activity is carried on exclusively for the purposes of, and only
in so far as it is, carrying out its duties as a Single Family Office.

(2) A Private Trust Company or Family Fiduciary Structure does not carry
on an activity specified under paragraph (t) of Rule 2.2.2 by way of
business if it:

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(a) carries on that activity exclusively for the purposes of, and only
in so far as it is, providing services to a Single Family; and

(b) does not solicit trust business from, or provide trust services to,
any Person outside the structure of the Single Family Office and
outside the Single Family.

2.4 Accepting deposits

2.4.1 In Rule 2.2.2, Accepting Deposits means accepting Deposits where:

(a) money received by way of Deposit is lent to others; or

(b) any other activity of the Person accepting the Deposit is financed, wholly
or to a material extent, out of the capital of or returns on any money
received by way of Deposit.

2.5 Providing credit

2.5.1 In Rule 2.2.2, Providing Credit means providing a Credit Facility to a Person
in his capacity as a borrower or potential borrower.

Exclusions

2.5.2 A Person who is an Authorised Firm does not Provide Credit where the
provision of the Credit Facility is incidental to or in connection with the trading
of Investments, or conducting Insurance Business.

Guidance

1. Where an Authorised Firm is providing brokerage services pursuant to its Financial
Service of Dealing in Investments as Agent, it may in the ordinary course of that
business also be necessary to provide margin lending facilities to its Clients. In doing
so the Authorised Firm will not be considered to be Providing Credit to its Client.

2. Where an Authorised Firm is Effecting Contracts of Insurance or Carrying Out
Contracts of Insurance, it may in the ordinary course of that Insurance Business be
necessary to provide an instalment contract to a Client with respect to the payment of
an insurance premium. In doing so the Authorised Firm will not be considered to be
Providing Credit to its Client.

2.6 Providing money services

2.6.1 (1) In Rule 2.2.2, Providing Money Services means providing currency
exchange or money transmission.
(2) In (1) ‘money transmission’ means:

(a) selling or issuing payment instruments;

(b) selling or issuing stored value; or

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9 GEN/VER33/07-13
(c) receiving money or monetary value for transmission, including
electronic transmission, to a location within or outside the
DIFC.

Exclusions

2.6.2 A Person who is an Authorised Firm does not Provide Money Services if it
does so in relation to the carrying on of another Financial Service where
Providing Money Services is in connection with and a necessary part of that
other Financial Service.

2.7 Dealing in investments as principal

2.7.1 In Rule 2.2.2, Dealing in Investments as Principal means buying, selling,
subscribing for or underwriting any Investment as principal.

Exclusions

2.7.2 A Person does not Deal in Investments as Principal merely by accepting an
instrument, creating or acknowledging indebtedness in respect of any loan,
credit, guarantee or other similar financial accommodation which that person
has made or provided.

2.7.3 A Person does not Deal in Investments as Principal by issuing or redeeming
Securities issued by that person.

2.7.4 A Person who is not an Authorised Firm or an Authorised Market Institution
does not Deal in Investments as Principal in relation to an Investment by
entering into a transaction with or through an Authorised Firm or a Regulated
Financial Institution.

2.7.5 A Person who is an Authorised Firm does not Deal in Investments as
Principal if in the course of managing the assets of a Private Equity Fund:

(a) the Person makes an initial subscription for Units of that Fund; and

(b) the Units are held by that Person for a period of more than 12 months.

2.8 Dealing in investments as agent

2.8.1 In Rule 2.2.2, Dealing in Investments as Agent means buying, selling,
subscribing for or underwriting any Investment as agent.

Exclusions

2.8.2 A Person does not Deal in Investments as Agent if the activity:

(a) is carried on in the course of Providing Legal Services or Providing
Accountancy Services which does not otherwise consist of the
carrying on of Financial Services;

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(b) may reasonably be regarded as a necessary part of any other
services provided in the course of that Providing Legal Services or
Providing Accountancy Services; and

(c) is not remunerated separately from the other services.

2.8.3 A Person does not Deal in Investments as Agent if that Person:

(a) is merely receiving and transmitting a Client order in respect of an
Investment; and

(b) does not execute the Client order for and on behalf of the Client or
otherwise commit the Client to the transaction relating to the relevant
Investment.

2.9 Arranging credit or deals in investments

2.9.1 (1) In Rule 2.2.2 Arranging Credit or Deals in Investments means:

(a) making arrangements with a view to another Person, whether as
principal or agent, buying, selling, subscribing for or underwriting
an Investment; or

(b) making arrangements for another Person, whether as principal
or agent, to borrow money by way of a Credit Facility.

(2) The arrangements in (1) include:

(a) arrangements which do not bring about the transaction; and

(b) arrangements comprising or involving the receipt and
transmission of Client orders in relation to Investments.

(3) The arrangements in (1) do not include:

(a) arrangements which amount to Operating an Alternative Trading
System; or

(b) arrangements of the kind described in Rule 2.26.1 that constitute
marketing.

Guidance

In regard to arrangements under Rule 2.9.1(3)(b), pursuant to Rule 2.2.10, an Authorised Firm
(other than a Representative Office) may carry on an activity of the kind described in Rule
2.26.1 that constitutes marketing without the need for any additional authorisation to do so.

Exclusions

2.9.2 There are excluded from Rule 2.9.1 any arrangements for a transaction into
which the Person making the arrangements enters or is to enter whether as
principal or agent for some other Person.

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11 GEN/VER33/07-13
2.9.3 A Person does not Arrange Credit or Deals in Investments merely by
providing means by which one party to a transaction is able to communicate
with other such parties.

2.9.4 A Person does not Arrange Credit or Deals in Investments by making
arrangements under which another Person accepts or is to accept an
instrument creating or acknowledging indebtedness in respect of any loan,
credit, guarantee or other similar financial accommodation which he or his
principal has made or provided.

2.9.5 A Person does not Arrange Credit or Deals in Investments merely by making
arrangements having as their sole purpose the provision of finance to enable
a Person to buy, sell, subscribe for or underwrite Investments.

2.9.6 A Person does not Arrange Credit or Deals in Investments by making
arrangements for the issue or redemption of Securities issued by it.

2.9.7 A Person does not Arrange Credit or Deals in Investments if the activity:

(a) is carried on in the course of Providing Legal Services or Providing
Accountancy Services, which does not otherwise consist of the
carrying on of Financial Services;

(b) may reasonably be regarded as a necessary part of any other
services provided in the course of Providing Legal Services or
Providing Accountancy Services; and

(c) is not remunerated separately from the other services.

2.10 Managing assets

2.10.1 In Rule 2.2.2, Managing Assets means managing on a discretionary basis
assets belonging to another Person if the assets include any Investment or
rights under a contract of Long-Term Insurance, not being a contract of
reinsurance.

Exclusions

2.10.2 A Person who is not an Authorised Firm or an Authorised Market Institution
does not Manage Assets if:

(a) he is a Person formally appointed in writing by the owner of the assets
to manage the assets in question; and

(b) all day-to-day decisions relating to the Investments which are included
in those assets are taken by an Authorised Firm or a Regulated
Financial Institution.

Guidance

A Person does not become a Fund Manager of a Fund merely by being appointed by a Fund
Manager of a Fund to provide the Financial Service of Managing Assets to the Fund. This is
because the Fund Manager remains legally accountable to the Unitholders of the Fund for the
proper management of the Fund in accordance with its Constitution and Prospectus.

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12 GEN/VER33/07-13
2.11 Advising on financial products or credit

2.11.1 (1) In Rule 2.2.2, Advising on Financial Products or Credit means giving
advice to a Person:

(a) in his capacity as an investor or potential investor, or in his
capacity as agent for an investor or a potential investor on the
merits of his buying, selling, holding, subscribing for or
underwriting a particular financial product (whether as principal
or agent); or

(b) in his capacity as a borrower or potential borrower or as agent
for a borrower or potential borrower on the merits of his
entering into a particular Credit Facility.

(2) Advice in (1)(a) and (b) includes a statement, opinion or report:

(a) where the intention is to influence a Person, in making a
decision, to select a particular financial product or an interest in
a particular financial product or to enter into a particular Credit
Facility; or

(b) which could reasonably be regarded as being intended to have
such an influence.

(3) For the purposes of this Rule and Rule 2.11.2, a “financial product” is
an Investment, Deposit, Profit Sharing Investment Account or rights
under a contract of Long-Term Insurance, that is not a contract of
reinsurance.

Exclusions

2.11.2 A Person does not Advise on Financial Products or Credit by giving advice in
any newspaper, journal, magazine, broadcast service or similar service in any
medium if the principal purpose of the publication or service, taken as a
whole, is neither:

(a) that of giving advice of the kind mentioned in Rule 2.11.1; nor

(b) that of leading or enabling Persons:

(i) to buy, sell, subscribe for or underwrite a particular financial
product; or

(ii) to enter into a particular Credit Facility.

2.11.3 A Person does not Advise on Financial Products or Credit if the activity:

(a) is carried on in the course of Providing Legal Services or Providing
Accountancy Services, which does not otherwise consist of the
carrying on of Financial Services;

(b) may reasonably be regarded as a necessary part of any other
services provided in the course of Providing Legal Services or
Providing Accountancy Services; and

GENERAL (GEN)

13 GEN/VER33/07-13

(c) is not remunerated separately from the other services.

2.12 Managing a collective investment fund

2.12.1 (1) In Rule 2.2.2, Managing a Collective Investment Fund means:

(a) being legally accountable to the Unitholders in the Fund for the
management of the property held for or within a Fund under
the Fund’s Constitution; and

(b) establishing, managing or otherwise operating or winding up a
Collective Investment Fund; and

(2) To the extent that any activity under (1) constitutes Managing Assets,
Providing Fund Administration, Dealing as Agent, Dealing as Principal,
Arranging Credit or Deals in Investments, or Providing Custody, such
a Financial Service is taken to be incorporated within Managing a
Collective Investment Fund.

(3) The Person referred to in (1) is a Fund Manager.

Exclusions

2.12.2 Pursuant to Article 20(3) of the Collective Investment Law 2010, a Person is
hereby prescribed by the DFSA as not Managing a Collective Investment
Fund merely because that Person:

(a) is acting as an agent, employee or delegate of the Fund Manager; or

(b) takes steps to wind up or dissolve a Fund or remedy a defect that led
to a Fund being deregistered.

2.13 Providing custody

2.13.1 (1) In Rule 2.2.2, Providing Custody means one or more of the following
activities:

(a) safeguarding Investments belonging to another Person;

(b) in the case of a Fund, safeguarding Fund Property;

(c) acting as a Central Securities Depository; or

(d) administering Investments or Fund Property for the purpose of
(a) and (b).

(2) In (1)(d), the following activities do not constitute the ‘administration of
such Investments or Fund Property’:

(a) providing information as to the number and value of any
Investments or Fund Property safeguarded;

GENERAL (GEN)

14 GEN/VER33/07-13

(b) converting currency; or

(c) receiving documents relating to an Investment or Fund
Property for the purpose of onward transmission to, from or at
the direction of the Person to whom the Investment or Fund
Property belongs.

(3) In (1)(c), “acting as a Central Securities Depository” means holding
securities in uncertificated (dematerialised) form to enable book entry
transfer of such securities for the purposes of clearing or settlement of
transactions executed on a facility operated by an Authorised Market
Institution or an Alternative Trading System or a similar facility
regulated and supervised by a Financial Services Regulator.

Guidance

A Person does not become a Fund Manager of a Fund merely by being appointed by a Fund
Manager of a Fund to provide the Financial Service of Providing Custody to the Fund. This is
because the Fund Manager remains legally accountable to the Unitholders of the Fund for the
safe custody and proper management of the Fund in accordance with its Constitution and
Prospectus.

2.14 Arranging custody

2.14.1 In Rule 2.2.2, Arranging Custody means arranging for one or more Persons to
carry on the activity described in Rule 2.13.1.

Exclusions

2.14.2 (1) A Person (the ‘introducer’) does not Arrange Custody by introducing a
Person to another Person (the ‘custodian’) who is authorised by the
DFSA or a Financial Services Regulator to carry on the activity
described in Rule 2.13.1, if the introducer is not connected to the
custodian.

(2) For the purposes of (1) an introducer is connected to a custodian if:

(a) the custodian is a member of the same Group as the
introducer; or

(b) the introducer is remunerated by the custodian or a member of
the custodian’s Group for making the introduction.

2.15 Effecting contracts of insurance

2.15.1 In Rule 2.2.2, Effecting Contracts of Insurance means effecting such
contracts as principal.

GENERAL (GEN)

15 GEN/VER33/07-13
2.16 Carrying out contracts of insurance

2.16.1 In Rule 2.2.2, Carrying Out Contracts of Insurance means carrying out such
contracts as principal.

2.17 Operating an exchange

2.17.1
(1) In Rule 2.2.2, Operating an Exchange means operating a facility which
functions regularly and
brings together multiple third party buying and
selling interests in Investments, in accordance with its non-
discretionary rules, in a way that can result in a contract in respect of
Investments admitted to trading or traded on the facility.

(2) The facility referred to in (1) may be organised on a temporary or
permanent basis and can be an order driven system, a quote driven
system or a hybrid of such systems that enables the market to operate
electronic trading or trading by other means.

(3) To the extent that any activity under (1) constitutes Dealing in
Investments as Agent, Arranging Credit or Deals in Investments or
Arranging Custody, such Financial Services are taken to be
incorporated within Operating an Exchange, provided such activity is
carried out as an incidental and integral part of the activities of
Operating an Exchange.

Guidance

1. An Authorised Market Institution authorised to Operate an Exchange may carry on
the Financial Service of operating a Multilateral Trading Facility, as defined in Rule
2.22.1(1)(a), provided it has an endorsement on its Licence that permits it to do so
(see Rule 2.2.12).

2. An Authorised Market Institution may also act as a Trade Repository if it has an
endorsement on its Licence that permits it to do so (see Rule 2.2.14). Acting as a
Trade Repository does not constitute a Financial Service but is subject to the
additional conduct requirements in GEN App 5.

2.18 Operating a clearing house

2.18.1
(1) In Rule 2.2.2, operating a Clearing House means operating a facility
where confirmation, clearance and settlement of transactions in
Investments are carried out in accordance with the non-discretionary
rules of the facility, under which the Person operating the facility:

(a) becomes a Central Counterparty (“CCP”); or

(b) provides a book-entry Securities Settlement System (“SSS”),

regardless of whether or not such a Person also operates a Central
Securities Depository.

GENERAL (GEN)

16 GEN/VER33/07-13
(2) In (1), confirmation, clearance and settlement means the process of:

(a) establishing settlement positions, including the calculation of
net positions arising from any transactions in Investments (the
transactions);

(b) checking that Investments, cash or both, including margin, are
available to secure the exposure arising from the transactions;
and

(c) securing the timely discharge (whether by performance,
compromise or otherwise) of the rights and liabilities in relation
to the transactions.

(3) In (1)(a), a Person operates as a CCP where it:

(a) ensures the performance of open contracts relating to
Investments made on a facility for trading Investments; and

(b) does so by interposing itself between counterparties to such
contracts by becoming either the buyer to every seller, or the
seller to every buyer.

(4) In (1)(b), a Person operates an SSS where it operates a system which
enables Investments held in accounts to be transferred and settled by
book entry according to a set of predetermined multilateral rules.

(5) Acting as a Central Securities Depository in (1) means holding
securities in uncertificated (dematerialised) form to enable book entry
transfer of such securities for the purposes of clearing or settlement of
transactions on its own facility and on any other similar facility,
including an Alternative Trading Facility or a facility supervised or
regulated by another Financial Services Regulator.

(6) To the extent that any activity under (1) constitutes Dealing In
Investments as Principal, Dealing in Investments as Agent, Arranging
Credit or Deals in Investments, Managing Assets or Arranging
Custody, such Financial Services are taken to be incorporated within
Operating a Clearing House, provided such activities are carried out
as an incidental and integral part of Operating a Clearing House.

Guidance

1. The activity of operating a Central Securities Depository may be carried on by an
Authorised Market Institution licensed to Operate a Clearing House in conjunction
with its regulated activities, particularly operating an SSS. An Authorised Firm
which has a licence authorising it to carry on Custody Services may also operate a
CSD under its licence (see GEN Rule 2.13.1(3)). If a Clearing House were to operate
a CSD through a subsidiary, that subsidiary would need to be licensed separately as
an Authorised Firm Providing Custody.

2. An Authorised Market Institution Licensed to Operate a Clearing House may also act
as a Trade Repository if it has an endorsement on its Licence that permits it to do so
(see Rule 2.2.14). Acting as a Trade Repository does not constitute a Financial
Service but is subject to the additional conducts requirements in GEN App 5.

GENERAL (GEN)

17 GEN/VER33/07-13
2.19 Insurance intermediation

2.19.1 (1) In Rule 2.2.2, Insurance Intermediation means:

(a) advising on insurance;

(b) acting as agent for another Person in relation to the buying or
selling of insurance for that other Person; or

(c) making arrangements with a view to another Person, whether
as principal or agent, buying insurance.

(2) In (1)(a), ‘advising’ means giving advice to a Person in his capacity as
a policyholder or potential policyholder, or in his capacity as agent for
a policyholder or potential policyholder on the merits of his entering
into a Contract of Insurance whether as principal or agent.

(3) In (2), ‘advice’ includes a statement, opinion or report:

(a) where the intention is to influence a Person, in making a
decision, to select a particular Contract of Insurance or
insurance cover; or

(b) which could reasonably be regarded as being intended to have
such influence.

(4) The arrangements in (1)(c) include arrangements which do not bring
about the transaction.

(5) The arrangements in (1)(c) do not include arrangements of the kind
described in Rule 2.26.1 that constitute marketing.

Guidance

In regard to arrangements under Rule 2.19.1(5), pursuant to Rule 2.2.10, an Authorised Firm
(other than a Representative Office) may carry on an activity of the kind described in Rule
2.26.1 that constitutes marketing without the need for any additional authorisation to do so.

Exclusions

2.19.2 A Person does not carry on the activities specified in Rule 2.19.1(1)(b) or (c) if
he enters or is to enter into a transaction in respect of a Contract of Insurance
as principal.

2.19.3 A Person does not carry on Insurance Intermediation if the activity:

(a) is carried on in the course of any professional business which does
not otherwise consist of the carrying on of Financial Services;

(b) may reasonably be regarded as a necessary part of any other
services provided in the course of that professional business; and

(c) is not remunerated separately from the other services.

2.19.4 A Person does not give advice in relation to a Contract of Insurance by giving
advice in any newspaper, journal, magazine, broadcast service or similar

GENERAL (GEN)

18 GEN/VER33/07-13
service in any medium if the principal purpose of the publication or service,
taken as a whole, is neither:

(a) that of giving advice of the kind mentioned in Rule 2.19.1; nor

(b) that of leading or enabling Persons to buy types of insurance.

2.19.5 A Person does not arrange a Contract of Insurance merely by providing the
means by which one party to a transaction is able to communicate with other
such parties.

2.19.6 A Person who is an Authorised Firm does not advise in relation to an
Insurance Contract if it is authorised under its Licence to carry on the
Financial Service of Advising on Financial Products or Credit, to the extent
the advice relates to a contract of Long-Term Insurance not being a contract
of reinsurance.

2.19.7 A Person who is an Authorised Firm does not arrange a Contract of Insurance
if it is authorised under its Licence to carry on the Financial Service of
Arranging Credit or Deals in Investments, to the extent that the arranging
relates to rights under a contract of Long-Term Insurance not being a contract
of reinsurance.

2.20 Insurance management

2.20.1 (1) In Rule 2.2.2, Insurance Management means providing management
services or exercising managerial functions for an insurer.

(2) In (1) management services and managerial functions include
administration and underwriting.

(3) In (1) an ‘insurer’ means a Person effecting or carrying out Contracts
of Insurance.

Exclusions

2.20.2 A Person does not provide Insurance Management to an insurer if he is an
Employee of that insurer.

2.20.3 A Person who is an Authorised Firm does not provide Insurance Management
if it is an Insurer.

2.21 Managing a profit sharing investment account

2.21.1 In Rule 2.2.2, Managing a Profit Sharing Investment Account means
managing an account or portfolio which is a Profit Sharing Investment
Account.

GENERAL (GEN)

19 GEN/VER33/07-13
2.22 Operating an alternative trading system

2.22.1 (1) In Rule 2.2.2, Operating an Alternative Trading System means:

(a) operating a Multilateral Trading Facility (“MTF”); or

(b) operating an Organised Trading Facility (“OTF”).

(2) In (1)(a), a Person operates an MTF if that Person operates a system
which brings together multiple third party buying and selling interests
in Investments, in accordance with its non-discretionary rules, in a way
that results in a contract in respect of such Investments.

(3) In (1)(b), a Person operates an OTF if that Person operates a system
which brings together multiple third party buying and selling interests
in Investments, in accordance with its discretionary rules, in a way that
results in a contract in respect of such Investments.

Guidance

The main distinction between operating an MTF and operating an OTF is that the former is
operated in accordance with the non-discretionary rules adopted and implemented by the
operator, whereas the latter is operated in accordance with the discretionary rules of the
operator. Accordingly, a Person operating an OTF has more flexibility relating to how it
applies its rules to participants on its facility, whereas a Person operating an MTF is required
to apply its rules in a non-discretionary manner across all participants on its facility.

Exclusion

2.22.2 A Person does not carry on the activity of the kind specified in Rule 2.22.1 if it
operates a facility which is merely an order routing system where buying and
selling interests in, or orders for, Investments are merely transmitted but do
not interact.

2.23 Providing Trust Services

2.23.1 In Rule 2.2.2, Providing Trust Services means:

(a) the provision of services with respect to the creation of an express
trust;

(b) arranging for any Person to act as a trustee in respect of any express
trust;

(c) acting as trustee in respect of an express trust;

(d) the provision of Trust Administration Services in respect of an express
trust; or

(e) acting as protector or enforcer in respect of an express trust.

GENERAL (GEN)

20 GEN/VER33/07-13
Guidance

Providing generic advice on the desirability of using a trust does not amount to Providing
Trust Services as defined in Rule 2.23.1.

Exclusions

2.23.2 A Person meeting part (1)(d) or (e) of the definition of a DNFBP does not
provide Trust Services where it only:

(a) arranges for a Person to act as trustee in respect of an express trust;
or

(b) provides services with respect to the creation of an express trust;

provided that:

(i) the provision of such services is solely incidental to the practice
of law or accounting as the case may be; and

(ii) the DNFBP is not holding itself out as Providing Trust Services.

Guidance

Acting as trustee, protector or enforcer or Providing Trust Administration Services are not
activities incidental to the practice of law or accounting and require a Licence.

2.23.3 A Person is not Providing Trust Services if that Person is the Trustee of a
Fund and the activities are in connection with or arise from, acting as the
Trustee of the Fund.

2.24 Providing fund administration

2.24.1 In Rule 2.2.2, Providing Fund Administration means providing one or more of
the following services in relation to a Fund:

(a) processing dealing instructions including subscriptions, redemptions,
stock transfers and arranging settlements;

(b) valuing of assets and performing net asset value calculations;

(c) maintaining the share register and Unitholder registration details;

(d) performing anti money laundering requirements;

(e) undertaking transaction monitoring and reconciliation functions;

(f) performing administrative activities in relation to banking, cash
management, treasury and foreign exchange;

(g) producing financial statements, other than as the Fund’s registered
auditor; or

GENERAL (GEN)

21 GEN/VER33/07-13
(h) communicating with participants, the Fund, the Fund Manager, and
investment managers, the prime brokers, the Regulators and any
other parties in relation to the administration of the Fund.

2.25 Acting as the Trustee of a Fund

2.25.1 (1) In Rule 2.2.2, Acting as the Trustee of a Fund means holding the
assets of a Fund on trust for the Unitholders where the Fund is in the
form of an Investment Trust.

(2) To the extent that any activity under (1) constitutes Providing Fund
Administration or Providing Custody, such a Financial Service is taken
to be incorporated within Acting as the Trustee of a Fund.

Guidance

Rule 2.25.1(2) alleviates any requirement upon a Trustee to obtain further authorisations for
certain Financial Services where the activities fall within the ordinary scope of the activity of
Acting as the Trustee of a Fund. The provision also facilitates the delegation of these discrete
activities under CIR section 7.3.

Exclusions

2.25.2 A Person is not Acting as the Trustee of a Fund merely because he is acting
as an agent, employee or delegate of a Trustee.

2.26 Operating a Representative Office

2.26.1 (1) In Rule 2.2.2 Operating a Representative Office means the marketing of
one or more financial services or financial products which are offered in
a jurisdiction other than the DIFC.

(2) For the purposes of (1) ‘marketing’ means:

(a) providing information on one or more financial products or
financial services;

(b) engaging in promotions in relation to (a); or

(c) making introductions or referrals in connection with the offer of
financial services or financial products;

provided that such activities do not constitute:

(d) Advising on Financial Products or Credit; or

(e) receiving and transmitting orders in relation to a financial
product.

(3) For the purposes of (1) and (2) (a), (c) and (d), the term ‘financial
product’ means an Investment, a Credit Facility, a Deposit, a Profit
Sharing Investment Account or a Contract of Insurance.

GENERAL (GEN)

22 GEN/VER33/07-13
Exclusions

2.26.2 An Authorised Firm other than a Representative Office does not Operate a
Representative Office if it undertakes any activities of the kind described in
Rule 2.26.1 that constitute marketing.

2.26.3 Any communication which amounts to marketing in respect of a financial
service or financial product, which is issued by or on behalf of a government
or non-commercial government entity, does not constitute marketing for the
purposes of Rule 2.26.1.

2.27 Operating a Credit Rating Agency

2.27.1 (1) In Rule 2.2.2, Operating a Credit Rating Agency means undertaking
one or more Credit Rating Activities for the purpose of producing a Credit
Rating with a view to that Credit Rating being:
(a) disseminated to the public; or
(b) distributed to a Person by subscription;
whether or not it is in fact disseminated or distributed.

(2) For the purposes of (1):

(a) Credit Rating Activities are data and information analysis relating
to a Credit Rating or the evaluation, approval, issue or review of
a Credit Rating; and

(b) a Credit Rating is an opinion expressed using an established
and defined ranking system of rating categories regarding the
creditworthiness of a Rating Subject.

(3) In (2), a Rating Subject means:

(a) a Person other than a natural person;

(b) a credit commitment; or

(c) a debt or debt-like Investment.

Exclusions

2.27.2 A Person does not Operate a Credit Rating Agency where that Person
prepares any credit scores, credit scoring systems or similar assessments
relating to obligations arising from consumer, commercial or industrial
relationships.

Guidance

1. The effect of Rule 2.27.1 is that even if a Person undertakes from a place of business
in the DIFC some but not all of the Credit Rating Activities for the purpose of
producing a Credit Rating, that Person needs to have a Licence authorising it to
Operate a Credit Rating Agency.

GENERAL (GEN)

23 GEN/VER33/07-13
2. Where a Credit Rating Agency outsources some of its Credit Rating Activities, it will
need to ensure that it meets the relevant requirements, including those relating to
outsourcing, in Rule 5.3.21.

3. There is no express prohibition against carrying on the Financial Service of Operating
a Credit Rating Agency by Persons who are authorised to carry on other Financial
Services. However, the specific conduct requirements applicable to Credit Rating
Agencies in COB chapter 8, include a prohibition against certain types of consultancy
and advisory services being provided by a Credit Rating Agency. Therefore, even if
a Credit Rating Agency has an appropriate Licence authorising it to provide advice
on financial products, it will not be able to provide the prohibited type of consultancy
and advisory services.

4. A Person may provide a private Credit Rating for the exclusive use of another Person
(Second Person) without seeking a License authorising it to Operate a Credit Rating
Agency where the Credit Rating is produced based on the request of the Second
Person and is not intended to be disseminated to the public or distributed by
subscription. Such a Person may wish to include an express warning in the Credit
Rating that it is intended only for the exclusive use of the Second Person and obtain
from such Second Person a prior written undertaking that the Credit Rating will not
be disseminated to the public or distributed on subscription.

5. Credit scoring referred to in Rule 2.27.2 is a method of assessing creditworthiness. A
credit score is primarily based on credit report information typically sourced from
credit bureaus. A Person does not become a Credit Rating Agency merely by
preparing or providing credit assessments. Lenders, such as banks and credit card
companies, use credit scores to evaluate the potential risk posed by lending money to
consumers and to mitigate losses due to bad debt. Insurance companies, and
government departments also employ the same techniques.

GENERAL (GEN)

24 GEN/VER33/07-13
3. FINANCIAL PROMOTIONS

3.1 Application

3.1.1 This chapter applies to any Person who approves, makes or intends to make
a Financial Promotion in or from the DIFC.

3.1.2 Rules 3.4.1 to 3.6.3 do not apply to a Person who makes an Offer which is in
accordance with the requirements relating to:

(a) an Offer of Securities under the Markets Law 2012 and the MKT
Rules; or

(b) an Offer of Units under the Collective Investment Law 2010 and CIR
Rules.

3.2 Overview

3.2.1 The Rules in this chapter are made for the purposes of the Financial
Promotions Prohibition in Article 41A of the Regulatory Law 2004.

Guidance

1. Article 41A(3) of the Regulatory Law 2004 defines a Financial Promotion as:

“Any communication, however made, which invites or induces a Person to:

(a) enter into, or offer to enter into, an agreement in relation to the
provision of a financial service; or

(b) exercise any rights conferred by a financial product or acquire,
dispose of, underwrite or convert a financial product.”

2. The Guidance in this chapter is designed to help explain the scope of the Financial
Promotions Prohibition.

3. The definition of a Financial Promotion is very broad and encompasses the
definitions of a “financial promotion” in Article 19(3) of the Collective Investment
Law 2010. A Financial Promotion also includes “marketing material” as defined
elsewhere in the Rulebook.

4. The DFSA considers that a Financial Promotion may be made in any manner and by
any form including, but not limited to, an oral, electronic or written communication
and includes an advertisement, or any form of promotion or marketing. A disclaimer
stating that a communication is not a Financial Promotion would not, on its own,
prevent a communication from being a Financial Promotion.

5. A Person who is permitted to make a Financial Promotion in the DIFC pursuant to
these Rules should ensure that in making such a Financial Promotion he does not
breach the Financial Services Prohibition in Article 41 of the Regulatory Law 2004.

GENERAL (GEN)

25 GEN/VER33/07-13
6. Depending on the nature and scale of the activities, if a Person makes Financial
Promotions on a regular basis or for a prolonged period while physically located in
the DIFC, for example by way of a booth, meetings or conferences, the DFSA may
consider such activities as constituting the carrying on of a Financial Service, such as
Operating a Representative Office. The DFSA considers that in the context of
Financial Promotions, “a regular basis” would be anything more than occasional and
“a prolonged period” would usually be anything more than 3 consecutive days.

3.3 Definition of a Financial Product

3.3.1 Pursuant to Article 41A(4) of the Regulatory Law 2004, “financial product” in
Article 41A(3)(b) of the Regulatory Law 2004 is hereby prescribed to mean an
Investment, a Credit Facility, a Deposit, a Profit Sharing Investment Account,
or a Contract of Insurance.

3.4 Scope of the Financial Promotions Prohibition

3.4.1 (1) A Person shall not, subject to (2), make a Financial Promotion in or
from the DIFC unless that Person is an Authorised Person.

(2) A Person other than an Authorised Person may make a Financial
Promotion in or from the DIFC if, and only to the extent that, the
Person:

(a) is licensed and supervised by a Financial Services Regulator
in the UAE;

(b) is a Recognised Body or External Fund Manager;

(c) is a Reporting Entity and makes a Financial Promotion in or
from the DIFC exclusively for the purpose of discharging its
mandatory disclosure requirements; or

(d) makes an exempt Financial Promotion as specified in (3).

(3) For the purposes of (2)(d), a communication is an “exempt Financial
Promotion” if it is:

(a) approved by an Authorised Firm;

(b) directed at and capable of acceptance exclusively by a Person
who appears on reasonable grounds to be a Professional
Client of the type specified in COB Rule 2.3.2(2);

(c) made to a Person in the DIFC (the “recipient”) as a result of an
unsolicited request by the recipient to receive the Financial
Promotion;

(d) made or issued by or on behalf of a government or non-
commercial government entity; or

(e) made in the DIFC by a Person in the course of providing legal
or accountancy services and which may reasonably be

GENERAL (GEN)

26 GEN/VER33/07-13
regarded as incidental to and a necessary part of the provision
of such services.

3.4.2 A Person does not breach the Financial Promotions Prohibition if:

(a) the Person causes a Financial Promotion to be made in the course of
providing a facility which is a mere conduit for the making of the
Financial Promotion;

(b) the Person is located outside the DIFC and makes a Financial
Promotion which appears, on reasonable grounds, to be a
communication which is not directed at or intended to be acted upon
by a Person in the DIFC; or

(c) the Financial Promotion is not made for a commercial or business
purpose.

Guidance

1. Examples of a mere conduit would include a newspaper or magazine, a website
carrying third-party banner ads, a postman or courier, a person paid to hand out
promotional material to the public and an event venue – unless in each case they were
the originator i.e the Person who makes the Financial Promotion.

2. In Rule 3.4.2(b) the DFSA considers that the following non-exhaustive list of factors
may each be indicative of whether or not a Financial Promotion is “intended to be
acted upon by, or targeted at, Persons in the DIFC”:

i. whether it is expressed to be for a Person or type of Person in the DIFC;

ii. whether it is sent to an address (including a P.O. Box) in the DIFC;

iii. whether it is physically distributed to Persons in the DIFC;

iv. whether it takes place in the DIFC;

v. whether it makes reference to the DIFC;

vi. whether it appears in a DIFC publication;

vii. whether it appears on a DIFC-based or related website or other media

viii. whether it is sent to the email of a Person in the DIFC; or

ix. whether it contains a prominent and clear disclaimer on its face that it is not
intended to be acted upon by Persons in the DIFC.

3. The DFSA in applying Rule 3.4.2(c) will generally consider that for a
communication to be made “for a commercial or business purpose” there must be a
commercial element to the Financial Promotion, whether or not the Financial
Promotion actually leads to the provision of any financial service. However, the
DFSA considers that “for a commercial or business purpose” requires a commercial
or business interest on the part of the communicator and the nature of the
communicator’s business need not be related to any specific financial service.

4. The DFSA considers that a Person located outside the DIFC who makes a Financial
Promotion into the DIFC, makes that communication in the DIFC. The DFSA
considers that the prohibition in Article 41A(1) applies irrespective of where the
communicator of the Financial Promotion is located.

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27 GEN/VER33/07-13

3.5 Additional Rules for Financial Promotions

3.5.1 (1) A Person in Rule 3.4.1(2) (a) to (d) must, subject to (2), take
reasonable care to ensure that any Financial Promotion it makes in or
from the DIFC:

(a) is clear, fair and not misleading;

(b) includes the Person’s name, address and regulatory status;

(c) if it is intended only for Professional Clients, is not sent or
directed to any Person who appears on reasonable grounds
not to be a Professional Client, and contains a clear statement
that only a Person meeting the criteria for a Professional Client
should act upon it; and

(d) which is provided to or directed at a Retail Client and contains
any information or representation relating to past performance,
or any forecast based on past performance or on any other
assumptions:

(i) presents a balanced view of the financial products or
financial services to which the Financial Promotion
relates;

(ii) identifies, in an easy to understand manner, the
information from which the past performance or forecast
is derived and how any key facts and assumptions used
in that context are drawn; and

(iii) contains a prominent warning that past performance is
not necessarily a reliable indicator of future performance.

(2) A Person described in Rule 3.4.1(2)(a) who makes a Financial
Promotion to an existing client in the DIFC is not required to comply
with (1) provided that in making the Financial Promotion that Person
complies with the requirements of the relevant Financial Services
Regulator in the UAE which relate to Financial Promotions.

Guidance

1. In presenting information relating to past performance of a financial product or
financial service, a Person should use a reputable independent actuarial, financial or
statistical reporting service provider.

2. The effect of Rule 3.5.1(2) is that a Person who is licensed and regulated by a
Financial Services Regulator in the UAE is not required to comply with Rule 3.5.1(1)
when communicating with an existing client. However, when making a Financial
Promotion to a prospective client in the DIFC, Rule 3.5.1(1) does apply to such
Persons, as do the prohibitions on the making of offers contained in the Markets Law
2012 and Collective Investment Law 2010 respectively.

3.5.2 A Person must not, in any Financial Promotion, attempt to limit or avoid any
duty or liability it may have under any DFSA-administered laws or the Rules.

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28 GEN/VER33/07-13

3.6 Approval of Financial Promotions by an Authorised Firm

3.6.1 For the purposes of GEN Rule 3.4.1(3)(a), an Authorised Firm must not
approve a Financial Promotion unless:

(a) the Financial Promotion includes a clear and prominent statement that
it has been “approved by” the relevant Authorised Firm; and

(b) the Financial Promotion is made in accordance with the requirements
in Section 3.5.

3.6.2 An Authorised Firm must not approve a Financial Promotion which is directed
at a Person who appears on reasonable grounds to be a Retail Client unless:

(a) it has an endorsement on its License which permits it to carry on a
Financial Service with or for a Retail Client; and

(b) the scope of its License includes the Financial Service and, if
applicable, the particular financial product, to which the Financial
Promotion relates.

3.6.3 An Authorised Firm must ensure that a Financial Promotion it has approved
complies with the requirements in this chapter on an on-going basis.

Guidance

An Authorised Firm which proposes to approve a Financial Promotion where all or part of that
promotion will be real time, such as a live event, will need to consider whether it is able to
comply effectively with any relevant Rules in relation to the Financial Promotion or its
approval

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29 GEN/VER33/07-13
4 CORE PRINCIPLES

4.1 Principles for Authorised Firms – application

4.1.1 (1) The twelve Principles for Authorised Firms, set out in section 4.2,
apply subject to (2) and (3) to every Authorised Firm in accordance
with Rules 4.1.2 and 4.1.3.

(2) The twelve Principles for Authorised Firms, set out in section 4.2, do
not apply to an Authorised Firm which is a Representative Office.

(3) An Authorised Firm which is a Credit Rating Agency does not have to
comply with the Principles set out in Rules 4.2.6, 4.2.7, 4.2.8 and
4.2.9.

4.1.2 (1) For the purposes of Rule 4.1.3 the term ‘activities’ means:

(a) Financial Services business;

(b) activities carried on in connection with a Financial Service
business;

(c) activities held out as being for the purpose of a Financial
Service business; and

(d) in relation to any particular Principle, any activity specified in
(2), (3) and (4).

(2) Principles 3 and 4 also apply in a Prudential Context to an Authorised
Firm with respect to the carrying on of all its activities.

(3) Principles 3 and 4 also take into account any activities of other
members of the Group of which the Authorised Firm is a member.

(4) Principles 10 and 11, to the extent that it relates to disclosing to the
DFSA, also applies to an Authorised Firm with respect to the carrying
on of all its activities, and takes into account any activities of other
members of the Group of which the Authorised Firm is a member.

4.1.3 (1) The Principles apply to an Authorised Firm only with respect to
activities carried on from an establishment maintained by it in the
DIFC, unless an extension in (2), (3), (4) or (5) applies.

(2) Where another applicable Rule, which is relevant to the activity, has a
wider territorial scope than that in (1), any related Principle applies
with that wider scope in relation to the activity described in the Rule.

(3) Principles 1, 2 and 3 apply in a Prudential Context to an Authorised
Firm with respect to activities wherever they are carried on.

(4) Principles 4 and 11 apply to an Authorised Firm with respect to
activities wherever they are carried on.

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30 GEN/VER33/07-13
(5) Principle 5 also applies to an Authorised Firm with respect to the
activities carried on in or from any place outside the DIFC if and to the
extent that the activities have, or might reasonably be regarded as
likely to have, a negative effect on confidence in the financial markets
operating in the DIFC.

Guidance

1. The Principles for Authorised Firms have the status of Rules and are a general
statement of fundamental regulatory requirements which apply alongside the other
Rules and also in new or unforeseen situations which may not be covered elsewhere
by a specific Rule. Rules in other areas of the Rulebook build upon these
fundamental principles. Consequently the Rules and Guidance elsewhere in the
Rulebook should not be seen as exhausting the implications of the Principles.

2. Breaching a Principle for Authorised Firms makes an Authorised Firm liable to
disciplinary action, and may indicate that it is no longer fit and proper to carry on a
Financial Service or to hold a Licence and the DFSA may consider withdrawing
authorisation or the Licence on that basis.

3. The onus will be on the DFSA to show that the Authorised Firm has been at fault in
some way, taking into account the standard of conduct required under the Principle in
question.

4.2 The Principles for Authorised Firms

Principle 1 – Integrity

4.2.1 An Authorised Firm must observe high standards of integrity and fair dealing.

Principle 2 – Due skill, care and diligence

4.2.2 In conducting its business activities an Authorised Firm must act with due
skill, care and diligence.

Principle 3 – Management, systems and controls

4.2.3 An Authorised Firm must ensure that its affairs are managed effectively and
responsibly by its senior management. An Authorised Firm must have
adequate systems and controls to ensure, as far as is reasonably practical,
that it complies with legislation applicable in the DIFC.

Principle 4 – Resources

4.2.4 An Authorised Firm must maintain and be able to demonstrate the existence
of adequate resources to conduct and manage its affairs. These include
adequate financial and system resources as well as adequate and competent
human resources.

Principle 5 – Market conduct

4.2.5 An Authorised Firm must observe proper standards of conduct in financial
markets.

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31 GEN/VER33/07-13
Principle 6 – Information and interests

4.2.6 An Authorised Firm must pay due regard to the interests of its customers and
communicate information to them in a way which is clear, fair and not
misleading.

Principle 7 – Conflicts of interest

4.2.7 An Authorised Firm must take all reasonable steps to ensure that conflicts of
interest between itself and its customers, between its Employees and
customers and between one customer and another are identified and then
prevented or managed, or disclosed, in such a way that the interests of a
customer are not adversely affected.

Principle 8 – Suitability

4.2.8 An Authorised Firm must take reasonable care to ensure the suitability of its
advice and discretionary decisions for customers who are entitled to rely upon
its judgement.

Principle 9 – Customer assets and money

4.2.9 Where an Authorised Firm has control of or is otherwise responsible for
assets or money belonging to a customer which it is required to safeguard, it
must arrange proper protection for them in accordance with the responsibility
it has accepted.

Principle 10 – Relations with regulators

4.2.10 An Authorised Firm must deal with Regulators in an open and co-operative
manner and keep the DFSA promptly informed of significant events or
anything else relating to the Authorised Firm of which the DFSA would
reasonably expect to be notified.

Principle 11 – Compliance with high standards of corporate governance

4.2.11 An Authorised Firm must have a corporate governance framework as
appropriate to the nature, scale and complexity of its business and structure,
which is adequate to promote the sound and prudent management and
oversight of the Authorised Firm’s business and to protect the interests of its
customers and stakeholders.

Guidance

Corporate governance framework encompasses structural and procedural arrangements such
as systems, policies and practices that are put in place to promote good governance and
include the specific measures required under GEN Rule 5.3.30.

Principle 12 – Remuneration practices

4.2.12 An Authorised Firm must have a remuneration structure and strategies which
are well aligned with the long term interests of the firm, and are appropriate to
the nature, scale and complexity of its business.

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32 GEN/VER33/07-13
4.3 Principles for Authorised Individuals – application

4.3.1 The six Principles for Authorised Individuals set out in section 4.4 apply to
every Authorised Individual in respect of every Licensed Function.

Guidance

1. The Principles for Authorised Individuals do not apply to an Authorised Individual in
respect of any other functions he may carry out, although his conduct in those
functions may be relevant to his fitness and propriety.

2. Breaching a Principle for Authorised Individuals makes an Authorised Individual
liable to disciplinary action and may indicate that he is no longer fit and proper to
perform a Licensed Function and the DFSA may consider suspending or withdrawing
Authorised Individual status on that basis.

3. The onus will be on the DFSA to show that he is culpable, taking into account the
standard of conduct required under the Principle in question. In determining whether
or not the particular conduct of an Authorised Individual complies with the Principles
for Authorised Individuals, the DFSA will take account of whether that conduct is
consistent with the requirements and standards relevant to his Authorised Firm, the
Authorised Individual’s own role and the information available to him.

4.4 The Principles for Authorised Individuals

Principle 1 – Integrity

4.4.1 An Authorised Individual must observe high standards of integrity and fair
dealing in carrying out every Licensed Function.

Principle 2 – Due skill, care and diligence

4.4.2 An Authorised Individual must act with due skill, care and diligence in carrying
out every Licensed Function.

Principle 3 – Market conduct

4.4.3 An Authorised Individual must observe proper standards of conduct in
financial markets in carrying out every Licensed Function.

Principle 4 – Relations with the DFSA

4.4.4 An Authorised Individual must deal with the DFSA in an open and co-
operative manner and must disclose appropriately any information of which
the DFSA would reasonably be expected to be notified.

Principle 5 – Management, systems and control

4.4.5 An Authorised Individual who has significant responsibility must take
reasonable care to ensure that the business of the Authorised Firm for which
he is responsible is organised so that it can be managed and controlled
effectively.

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33 GEN/VER33/07-13
Principle 6 – Compliance

4.4.6 An Authorised Individual who has significant responsibility must take
reasonable care to ensure that the business of the Authorised Firm for which
he is responsible complies with any legislation applicable in the DIFC.

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34 GEN/VER33/07-13
5 MANAGEMENT, SYSTEMS AND CONTROLS

5.1 Application

5.1.1 (1) Subject to (5), this chapter applies to every Authorised Person with
respect to the Financial Services carried on in or from the DIFC.

(2) It also applies in a Prudential Context to a Domestic Firm with respect
to all its activities wherever they are carried on.

(3) Section 5.3 also applies to an Authorised Firm in a Prudential Context
with respect to its entire DIFC branch’s activities wherever they are
carried on.

(4) This chapter also applies to an Authorised Market Institution, if it has
an endorsed Licence authorising it to maintain an Official List of
Securities, with respect to such maintenance.

(5) Rules 5.3.13, 5.3.14, 5.3.15, 5.3.23, 5.3.24, 5.3.30 and 5.3.31 do not
apply to an Authorised ISPV.

(6) This chapter does not apply to a Representative Office.

Guidance

1. The purpose of this chapter is to set out the requirements for the Governing Body and
the senior management within an Authorised Person who are to take direct
responsibility for the Authorised Person’s arrangements on matters likely to be of
interest to the DFSA wherever they may give rise to risks to the DFSA’s objectives or
they affect the DFSA’s functions under the legislation applicable in the DIFC. See
also the requirements relating to organisation in Rules 5.3.2 and 5.3.3.

2. In relation to an Authorised Market Institution, this chapter should be read in
conjunction with the AMI module.

3.
In relation to an Authorised Firm which is a Fund Manager or the Trustee, this
chapter should be read in conjunction with the CIR module and construed to take into
account any Fund which the Authorised Firm operates or for which it acts as the
Trustee.

4. In relation to an Authorised Person which carries on Islamic Financial Business in or
from the DIFC, this chapter should be read in conjunction with the IFR module.

5.2 Allocation of significant responsibilities

Apportionment of significant responsibilities

5.2.1 An Authorised Person must apportion significant responsibilities between the
members of its Governing Body and its senior management and maintain
such apportionment in such a way that:

(a) it meets the corporate governance requirements in Rule 5.3.30;

(b) it is appropriate with regard to:

GENERAL (GEN)

35 GEN/VER33/07-13

(i) the nature, scale and complexity of the business of the
Authorised Person; and

(ii) the ability and qualifications of the responsible individuals;

(c) it is clear who is responsible for which matters; and

(d) the business of the Authorised Person can be adequately monitored
and controlled by the Authorised Person’s Governing Body and senior
management.

5.2.2 An Authorised Person must allocate to the Senior Executive Officer or to the
individual holding equivalent responsibility for the conduct for the Authorised
Person’s business or the Governing Body, the functions of:

(a) dealing with the apportionment of responsibilities; and

(b) overseeing the establishment and maintenance of systems and
controls.

Guidance

Rules 5.2.1 and 5.2.2 do not derogate from the overall responsibility of the Governing Body in
Rule 5.3.30(2)
.

Recording of apportionment

5.2.3 (1) An Authorised Person must establish and maintain an up-to-date
record of the arrangements it has made to comply with Rules 5.2.1
and 5.2.2.

(2) The record must show that the members of the Governing Body and
the senior management are aware of and have accepted the
responsibilities apportioned in accordance with Rule 5.2.1.

(3) Where a responsibility has been allocated to more than one individual,
the record must show clearly how that responsibility is allocated
between the individuals.

(4) The record must be retained for six years from the date on which it
was established or superseded by a more up-to-date record.

5.3 Systems and controls

General requirement

5.3.1 (1) An Authorised Person must establish and maintain systems and
controls, including but not limited to financial and risk systems and
controls, that ensure that its affairs are managed effectively and
responsibly by its senior management.

(2) An Authorised Person must undertake regular reviews of its systems
and controls.

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36 GEN/VER33/07-13

Guidance

The nature and extent of the systems and controls of an Authorised Person will depend upon a
variety of factors including the nature, scale and complexity of its business. While all
Authorised Persons, irrespective of the nature, scale, and complexity of their business and
legal structure or organisation need to comply with this chapter, the DFSA will take into
account these factors and the differences that exist between Authorised Persons when
assessing the adequacy of an Authorised Person’s systems and controls. Nevertheless, neither
these factors nor the differences relieve an Authorised Person from compliance with its
regulatory obligations.

Organisation

5.3.2 (1) An Authorised Person must establish and implement, taking due
account of the nature, scale and complexity of its business and
structure, adequate measures to ensure that:

(a) the roles and responsibilities assigned to its Governing Body
and the members of that body, senior management and
Persons Undertaking Key Control Functions are clearly
defined;

(b) there are clear reporting lines applicable to the individuals
undertaking those functions; and

(c) the roles, responsibilities and reporting lines referred to in (a)
and (b) are documented and communicated to all relevant
Employees.

(2) An Authorised Firm must ensure that any Employee who will be
delivering Financial Services to its customers is clearly identified,
together with his respective lines of accountability and supervision.

(3) An Authorised Firm which is conducting Investment Business or the
Financial Services of Providing Fund Administration or Providing Trust
Services, must ensure it makes publically available details of any
Employee who delivers Financial Services to its customers, by
including such information:

(a) in a register, maintained by the Authorised Firm at its place of
business and open for inspection during business hours; or

(b) on the website of the Authorised Firm.

(4) An Authorised Firm referred to in (3), must have complete and up to
date information on its register or website, including:

(a) the date on which the relevant Employee commenced
delivering of Financial Services to customers; and

(b) the Financial Services which that Employee is permitted by
the Authorised Firm to deliver to customers.

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37 GEN/VER33/07-13
Guidance

1. The term Employee is defined in the GLO widely and includes members of the
Governing Body or directors and senior managers of the Authorised Firm.
Therefore, the requirements relating to Employees in Rules 5.3.3 and 5.3.6 apply to
all Employees including those across the organisation.

2. The division of responsibilities between the Governing Body and the senior
management should be clearly established and set out in writing. In assigning duties,
the Governing Body should take care that no one individual has unfettered powers in
making material decisions.

3. Members of the Governing Body may include individuals undertaking senior
management functions (such as the chief executive of the firm) and Persons
Undertaking Key Control Functions. In assigning specific functions to such
individuals, care should be taken to ensure that the integrity and effectiveness of the
functions they are to perform are not compromised. For example, if the Chairperson
of the Governing Body is also the chief executive officer of the Authorised Person,
the Governing Body should ensure that the performance assessment of that individual
in his roles should be undertaken by a senior non-executive member of the
Governing Body or an independent external consultant.

4. Persons Undertaking Key Control Functions are defined in GLO in an inclusive
manner to encompass Persons such as the heads of risk control, compliance and
internal audit functions. In the case of an Insurer, the actuary also is a Person who
Undertakes a Key Control Function.

5. An example of an Employee providing Financial Services to a customer is a client
relationship manager employed by an Authorised Firm providing wealth management
services. In contrast, an Employee who may be employed in the back office of an
Authorised Firm with responsibility for setting up client accounts would not be client
facing.

5.3.3 An Authorised Person must ensure that key duties and functions are
segregated. Such segregation must ensure that the duties and functions to be
performed by the same individual do not conflict with each other, thereby
impairing the effective discharge of those functions by the relevant individuals
(such as undetected errors or any abuse of positions) and thus exposing the
Authorised Person or its customers or users to inappropriate risks.

Risk management

5.3.4 An Authorised Person must establish and maintain risk management systems
and controls to enable it to identify, assess, mitigate, control and monitor its
risks.

5.3.5 An Authorised Person must develop, implement and maintain policies and
procedures to manage the risks to which the Authorised Person and where
applicable, its customers or users, are exposed.

5.3.6 (1) An Authorised Person must appoint an individual to advise its
Governing Body and senior management of such risks.

(2) An Authorised Person which is part of a Group should be aware of the
implications of any Group wide risk policy and systems and controls
regime.

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Compliance

5.3.7 An Authorised Person must establish and maintain compliance arrangements,
including processes and procedures that ensure and evidence, as far as
reasonably practicable, that the Authorised Firm complies with all legislation
applicable in the DIFC.

5.3.8 An Authorised Person must document the organisation, responsibilities and
procedures of the compliance function.

5.3.9 An Authorised Person must ensure that the Compliance Officer has access to
sufficient resources, including an adequate number of competent staff, to
perform his duties objectively and independently of operational and business
functions.

5.3.10 An Authorised Person must ensure that the Compliance Officer has
unrestricted access to relevant records and to the Authorised Person’s
Governing Body and senior management.

5.3.11 An Authorised Person must establish and maintain monitoring and reporting
processes and procedures to ensure that any compliance breaches are
readily identified, reported and promptly acted upon.

5.3.12 An Authorised Person must document the monitoring and reporting processes
and procedures as well as keep records of breaches of any of legislation
applicable in the DIFC.

Internal audit

5.3.13 (1) An Authorised Person must establish and maintain an internal audit
function with responsibility for monitoring the appropriateness and
effectiveness of its systems and controls.

(2) The internal audit function must be independent from operational and
business functions.

Guidance

The Person appointed as the Internal Auditor of an Authorised Market Institution is a Key
Individual pursuant to AMI Rule 5.3.1.

5.3.14 An Authorised Person must ensure that its internal audit function has
unrestricted access to all relevant records and recourse when needed to the
Authorised Person’s Governing Body or the relevant committee, established
by its Governing Body for this purpose.

5.3.15 An Authorised Person must document the organisation, responsibilities and
procedures of the internal audit function.

Business plan and strategy

5.3.16 (1) An Authorised Person must produce a business plan which enables it,
amongst other things, to manage the risks to which it and its
customers are exposed.

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39 GEN/VER33/07-13
(2) The business plan must take into account the Authorised Person’s
current business activities and the business activities forecast for the
next twelve months.

(3) The business plan must be documented and updated as appropriate
to take account of changes in the business environment and to reflect
changes in the business of the Authorised Person.

Management information

5.3.17 An Authorised Person must establish and maintain arrangements to provide
its Governing Body and senior management with the information necessary to
organise, monitor and control its activities, to comply with legislation
applicable in the DIFC and to manage risks. The information must be
relevant, accurate, comprehensive, timely and reliable.

Staff and agents

5.3.18 An Authorised Person must establish and maintain systems and controls that
enable it to satisfy itself of the suitability of anyone who acts for it.

5.3.19 (1) An Authorised Firm must ensure, as far as reasonably practical, that
its Employees are:

(a) fit and proper;

(b) competent and capable of performing the functions which are
to be assigned to those Employees; and

(c) trained in the requirements of the legislation applicable in the
DIFC.

(2) An Authorised Firm must establish and maintain systems and controls
to comply with (1). An Authorised Firm must be able to demonstrate
that it has complied with these requirements through appropriate
measures, including the maintenance of relevant records.

Guidance

1. When considering whether an Employee is fit and proper, competent and capable, an
Authorised Firm should consider any training undertaken or required by an
Employee, the nature of the Clients to whom an Employee provides Financial
Services, and the type of activities performed by an Employee in the provision of
such Financial Services including any interface with Clients.

2. When assessing the fitness and propriety of Employees, an Authorised Firm should
be guided by the matters set out in section 2.3 of the RPP Sourcebook and should
also monitor conflicts or potential conflicts of interest arising from all of the
individual’s links and activities.
3. When assessing the competence and capability of an Employee, an Authorised Firm
should:

a. obtain details of the skills, knowledge and experience of the Employee relevant
to the nature and requirements of the role;

b. take reasonable steps to verify the relevance, accuracy and authenticity of any
information obtained;

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40 GEN/VER33/07-13
c. determine, in light of the Employee’s relevant skills, knowledge and experience,
that the Employee is competent and capable of fulfilling the duties of the role;
and

d. consider the level of responsibility that the Employee will assume within the
Authorised Firm, including whether the Employee will be providing Financial
Services to Retail Clients in an interfacing role.

4. An Authorised Firm should also satisfy itself that an Employee:

a. continues to be competent and capable of performing the role;

b. has kept abreast of market, product, technology, legislative and regulatory
developments that are relevant to the role, through training or other means; and

c. is able to apply his knowledge.

5. Refer to section 2.2.13 of the RPP Sourcebook for criteria for suitability of members
of the Governing Body of the Authorised Firm.

Conduct

5.3.20 An Authorised Person must establish and maintain systems and controls that
ensure, as far as reasonably practical, that the Authorised Person and its
Employees do not engage in conduct, or facilitate others to engage in
conduct, which may constitute:

(a) market misconduct; or

(b) a financial crime under any applicable U.A.E. laws.

Outsourcing

5.3.21 (1) An Authorised Person which outsources any of its functions or
activities directly related to Financial Services to service providers
(including within its Group) is not relieved of its regulatory obligations
and remains responsible for compliance with legislation applicable in
the DIFC.

(2) The outsourced function under this Rule shall be deemed as being
carried out by the Authorised Person itself.

(3) An Authorised Person which uses such service providers must ensure
that it:

(a) has undertaken due diligence in choosing suitable service
providers;

(b) effectively supervises the outsourced functions or activities;
and

(c) deals effectively with any act or failure to act by the service
provider that leads, or might lead, to a breach of any legislation
applicable in the DIFC.

5.3.22 (1) An Authorised Person must inform the DFSA about any material
outsourcing arrangements.

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41 GEN/VER33/07-13
(2) An Authorised Person which has a material outsourcing arrangement
must:

(a) establish and maintain comprehensive outsourcing policies,
contingency plans and outsourcing risk management
programmes;

(b) enter into an appropriate and written outsourcing contract; and

(c) ensure that the outsourcing arrangements neither reduce its
ability to fulfil its obligations to customers and the DFSA, nor
hinder supervision of the Authorised Person by the DFSA.

(3) An Authorised Person must ensure that the terms of its outsourcing
contract with each service provider under a material outsourcing
arrangement require the service provider to:

(a) provide for the provision of information under section 11.1 in
relation to the Authorised Person and access to their business
premises; and

(b) deal in an open and co-operative way with the DFSA.

Guidance

1. An Authorised Person’s outsourcing arrangements should include consideration of:

a. applicable guiding principles for outsourcing in financial services issued by
the Joint Forum; or

b. any equivalent principles or regulations the Authorised Person is subject to
in its home country jurisdiction.

2. An outsourcing arrangement would be considered to be material if it is a service of
such importance that weakness or failure of that service would cast serious doubt on
the Authorised Person’s continuing ability to remain fit and proper or to comply with
DFSA administered Laws and Rules.

Business continuity and disaster recovery

5.3.23 (1) An Authorised Person must have in place adequate arrangements to
ensure that it can continue to function and meet its obligations under
the legislation applicable in the DIFC in the event of an unforeseen
interruption.

(2) These arrangements must be kept up to date and regularly tested to
ensure their effectiveness.

Guidance

1. In considering the adequacy of an Authorised Person’s business continuity
arrangements, the DFSA will have regard to the Authorised Person’s management of
the specific risks arising from interruptions to its business including its crisis
management and disaster recovery plans.

2. The DFSA expects an Authorised Person to have:

a. arrangements which establish and maintain the Authorised Person’s physical
security and protection for its information systems for business continuity

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purposes in the event of planned or unplanned information system
interruption or other events that impact on its operations;

b. considered its primary data centres’ and business operations’ reliance on
infrastructure components, for example transportation, telecommunications
networks and utilities and made the necessary arrangements to minimise the
risk of interruption to its operations by arranging backup of infrastructure
components and service providers; and

c. considered, in its plans for dealing with a major interruption to its primary
data centre or business operations, its alternative data centres’ and business
operations’ reliance on infrastructure components and made the necessary
arrangements such that these do not rely on the same infrastructure
components and the same service provider as the primary data centres and
operations.

Records

5.3.24 (1) An Authorised Person must make and retain records of matters and
dealings, including Accounting Records and corporate governance
practices which are the subject of requirements and standards under
the legislation applicable in the DIFC.

(2) Such records, however stored, must be capable of reproduction on
paper within a reasonable period not exceeding 3 business days.

5.3.25 Subject to Rule 5.3.26, the records required by Rule 5.3.24 or by any other
Rule in this Rulebook must be maintained by the Authorised Person in the
English language.

5.3.26 If an Authorised Person’s records relate to business carried on from an
establishment in a territory outside the DIFC, an official language of that
territory may be used instead of the English language as required by Rule
5.3.25.

5.3.27 An Authorised Person must have systems and controls to fulfil the Authorised
Person’s legal and regulatory obligations with respect to adequacy, access,
period of retention and security of records.

Fraud

5.3.28 An Authorised Person must establish and maintain effective systems and
controls to:

(a) deter and prevent suspected fraud against the Authorised Person; and

(b) report suspected fraud and other financial crimes to the relevant
authorities.

5.3.29 Deleted

Corporate Governance

5.3.30 (1) An Authorised Person must have a Governing Body and senior
management that meet the requirements in (2) and (3) respectively.

(2) The Governing Body of the Authorised Person must:

(a) be clearly responsible for setting or approving (or both) the
business objectives of the firm and the strategies for achieving

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those objectives and for providing effective oversight of the
management of the firm;

(b) comprise an adequate number and mix of individuals who
have, among them, the relevant knowledge, skills, expertise
and time commitment necessary to effectively carry out the
duties and functions of the Governing Body; and

(c) have adequate powers and resources, including its own
governance practices and procedures, to enable it to discharge
those duties and functions effectively.

(3) The senior management of the Authorised Person must be clearly
responsible for the day-to-day management of the firm’s business in
accordance with the business objectives and strategies approved or
set by the Governing Body.

Guidance

Scope of corporate governance

1. Corporate governance is a framework of systems, policies, procedures and controls
through which an entity:

a. promotes the sound and prudent management of its business;

b. protects the interests of its customers and stakeholders; and

c. places clear responsibility for achieving (a) and (b) on the Governing Body
and its members and the senior management of the Authorised Person.

2. Many requirements designed to ensure sound corporate governance of companies,
such as those relating to shareholder and minority protection and responsibilities of
the Board of Directors of companies, are found in the company laws and apply to
Authorised Persons. Additional disclosure requirements also apply if they are listed
companies. The requirements in this Module are tailored to Authorised Persons and
are designed to augment and not to exclude the application of those requirements.

3. Whilst Rule 5.3.30 deals with two aspects of corporate governance, the requirements
included in other provisions under sections 5.2 and 5.3 also go to the heart of sound
corporate governance by promoting prudent and sound management of the
Authorised Person’s business in the interest of its customers and stakeholders. These
requirements together are designed to promote sound corporate governance practices
in Authorised Persons whilst also providing a greater degree of flexibility for
Authorised Persons in establishing and implementing a corporate governance
framework that are both appropriate and practicable to suit their operations.

4. Stakeholder groups of an Authorised Person, who would benefit from the sound and
prudent management of firms, can be varied but generally encompass its owners
(shareholders), customers (in the case of an AMI, its members and investors),
creditors, counterparties and employees, whose interests may not necessarily be
mutually coextensive. A key objective in enhancing corporate governance standards
applicable to Authorised Persons is to ensure that firms are soundly and prudently
managed, with the primary regard being had to its customers.

Proportionate application to firms depending on the nature of their business

5. One of the key considerations that underpins how the corporate governance
requirements set out in Rule 5.3.30 apply to an Authorised Person is the nature, scale
and complexity of the Authorised Person’s business, and its organisational structure.

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6. While requiring banks, insurers and dealers to have more detailed and complex
corporate governance systems and controls, simpler systems and procedures could be
required for other firms, depending on the nature and scale of their Financial
Services. For example, in the case of certain types of Category 4 Financial Service
providers such as arranging or advising only firms, less extensive and simpler
corporate governance systems and procedures may be sufficient to meet their
corporate governance obligations.

7. For example, an Authorised Person which is a small scale operation with a tightly
held ownership structure may not have a Governing Body which comprises members
who are fully independent of the firm’s business and from each other, nor be
sufficiently large to be able to form numerous committees of the Governing Body to
undertake various functions such as nomination and remuneration. In such cases,
whilst strict adherence to such aspects of best practice would not be required, overall
measures as appropriate to achieve the sound and prudent management of the
business would be needed. For example, a firm with no regulatory track record would
be expected to have additional corporate governance controls in place to ensure the
sound and prudent management of its business, such as the appointment of an
independent director (who has relevant regulatory experience) to its Governing Body.

Application to Branches and Groups

8. As part of the flexible and proportionate application of corporate governance
standards to firms, whether a firm is a Branch or a subsidiary within a Group is also
taken into account. An Authorised Person which is a member of a Group may,
instead of developing its own corporate governance policies, adopt group-wide
corporate governance standards. However, the Governing Body of the Authorised
Person should consider whether those standards are appropriate for the firm, and to
the extent possible, make any changes as necessary.

9. In the case of a Branch, corporate governance practices adopted at the head office
would generally apply to the Branch and are expected to be adequate. The DFSA
considers, as part of its authorisation of a Branch and on-going supervision, the
adequacy of regulatory and supervisory arrangements applicable in the home
jurisdiction, including a corporate governance framework adopted and implemented
by the head office (see section 3.2.15 of the RPP Sourcebook).

Best practice relating to corporate governance

10. In addition to the considerations noted above, best practice that an Authorised Person
may adopt to achieve compliance with the applicable corporate governance standards
is set out in Guidance at Appendix 3.1. An Authorised Person may, where the best
practice set out in App3.1 is not suited to its particular business or structure, deviate
from such best practice or any aspects thereof. The DFSA will expect the Authorised
Person to demonstrate to the DFSA, upon request, what the deviations are and why
such deviations are considered by the Authorised Person to be appropriate.

Remuneration structure and strategies

5.3.31 (1) The Governing Body of an Authorised Person must ensure that the
remuneration structure and strategy of the firm:

(a) are consistent with the business objectives and strategies and
the identified risk parameters within which the firm’s business
is to be conducted;

(b) provide for effective alignment of risk outcomes and the roles
and functions of the Employees, taking account of:

(i) the nature of the roles and functions of the relevant
Employees; and

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(ii) whether the actions of the Employees may expose the
firm to unacceptable financial, reputational and other
risks;

(c) at a minimum, include the members of its Governing Body, the
senior management, Persons Undertaking Key Control
Functions and any major risk-taking Employees; and

(d) are implemented and monitored to ensure that they operate,
on an on-going basis, effectively and as intended.

(2) The Governing Body must provide to the DFSA and relevant
stakeholders sufficient information about its remuneration structure
and strategies to demonstrate that such structure and strategies meet
the requirements in (1) on an on-going basis.

(3) For the purposes of this Rule, “major risk-taking Employees” are
Employees whose actions have a material impact on the risk exposure
of the Authorised Person.

Guidance

Proportionate application to firms depending on the nature of their business

1. Those considerations set out in Guidance items 5 – 7 under Rule 5.3.30 apply equally
to the way in which the remuneration structure and strategies related requirement in
Rule 5.3.31 is designed to apply to an Authorised Person. Accordingly, whilst most
Category 4 firms may have simple arrangements to achieve the outcome of aligning
performance outcomes and risks associated with remuneration structure and
strategies, banks, insurers and dealers are expected to have more stringent measures
to address such risks.

Application to Branches and Groups

2. As part of the flexible and proportionate application of corporate governance
standards to firms, whether a firm is a Branch or a subsidiary within a Group is also
taken into account. As such, the considerations noted in Guidance items 8 – 9 under
Rule 5.3.30 apply equally to the application of the remuneration related requirements
for Branches and Groups. For example, where an Authorised Person is a member of a
Group, its Governing Body should consider whether the Group wide policies, such as
those relating to the Employees covered under the remuneration strategy and the
disclosure relating to remuneration made at the Group level are adequate to meet its
obligations under Rule 5.3.31.

Best practice relating to corporate governance

3. In addition to the considerations noted above, best practice that an Authorised Person
may adopt to promote sound remuneration structure and strategies within the firm is
set out as Guidance at Appendix 3.2. Where such best practice or any aspects thereof
are not suited to a particular Authorised Person’s business or structure, it may deviate
from such best practice. The DFSA will expect the Authorised Person to
demonstrate, upon request, what the deviations are and why such deviations are
considered appropriate.

Disclosure of information relating to remuneration structure and strategy

4. The information which an Authorised Person provides to the DFSA relating to its
remuneration structure and strategies should be included in the annual report or

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accounting statements. The DFSA expects the annual report of Authorised Persons
to include, at a minimum, information relating to:

a. the decision making process used to determine the firm-wide remuneration
policy (such as by a remuneration committee or an external consultant if
any, or by the Governing Body);

b. the most important elements of its remuneration structure (such as, in the
case of performance based remuneration, the link between pay and
performance and the relevant assessment criteria); and

c. aggregate quantitative information on remuneration of its Governing Body,
the senior management, Persons Undertaking Key Control Functions and
any major risk taking Employees.

5. The DFSA may, pursuant to its supervisory powers, require additional information
relating to the remuneration structure and strategy of an Authorised Firm to assess
whether the general elements relating to remuneration under Rule 5.3.31(1) are met
by the firm. Any significant changes to the remuneration structure and strategy
should also be notified to the DFSA before being implemented. See Rule 11.10.20.

6. The information included in the annual report is made available to the DFSA and the
shareholders, and in the case of a listed company, to the public. The Governing Body
of the Authorised Person should also consider what additional information should be
included in the annual report. In the case of banks, insurers and dealers, more
detailed disclosure of remuneration structure and strategy and its impact on the
financial soundness of the firm would be required. When providing disclosure
relating to remuneration in its annual report, Authorised Persons should take account
of the legal obligations that apply to the firm including the confidentiality of
information obligations.

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6 GENERAL PROVISIONS

6.1 Application

6.1.1 (1) Sections 6.1, 6.2, 6.3 and 6.9 apply to every Person to whom any
provision in the Rulebook applies.

(2) Section 6.4 applies to every Authorised Person.

(3) Sections 6.5 and 6.6 apply to every Authorised Firm, Authorised
Market Institution and Person who has submitted an application for
authorisation to carry on one or more Financial Services.

(4) Section 6.7 applies to any Person who has been affected by the
activities of the DFSA.

(5) Section 6.8 applies to the DFSA.

(6) This chapter does not apply to a Representative Office.

6.2 Interpreting the rulebook

Guidance

Interpretation

1. Every provision in the Rulebook must be interpreted in the light of its purpose. The
purpose of any provision is to be gathered first and foremost from the text of the
provision in question and its context among other
relevant provisions.

2. When this section refers to a provision, this means every type of provision, including
Rules and Guidance.

3. Where reference is made in the Rulebook to another provision of the Rulebook or
other DIFC legislation, it is a reference to that provision as amended from time to
time.

4. Unless the contrary intention appears:

a. words in the Rulebook importing the masculine gender include the feminine
gender and words importing the feminine gender include the masculine; and

b. words in the Rulebook in the singular include the plural and words in the
plural include the singular.

5. If a provision in the Rulebook refers to a communication, notice, agreement, or other
document ‘in writing’ then, unless the contrary intention appears, it means in legible
form and capable of being reproduced on paper, irrespective of the medium used.
Expressions related to writing must be interpreted accordingly.

6. Any reference to ‘dollars’ or ‘$’ is a reference to United States Dollars unless the
contrary intention appears.

7. References to Articles made throughout the Rulebook are references to Articles in the
Regulatory Law 2004 unless otherwise stated.

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48 GEN/VER33/07-13

8. Unless stated otherwise, a day means a calendar day. If an obligation falls on a
calendar day which is either a Friday or Saturday or an official State holiday in the
DIFC, the obligation must take place on the next calendar day which is a business
day.

Defined Terms

9. Defined terms are identified throughout the Rulebook by the capitalisation of the
initial letter of a word or of each word in a phrase and are defined in the Glossary
(GLO), however, where a word or phrase is used only in a prudential context in PIB
then for convenience purposes it is only defined under Rule 1.2.1 of PIB rather than
in GLO. Unless the context otherwise requires, where capitalisation of the initial
letter is not used, an expression has its natural meaning.

6.3 Emergency

6.3.1 (1) If an Authorised Person is unable to comply with a particular Rule due
to an emergency which is outside its or its Employees’ control and
could not have been avoided by taking all reasonable steps, the
Authorised Person will not be in contravention of that Rule to the
extent that, in consequence of the emergency, compliance with that
Rule is impractical.

(2) This Rule applies only for so long as the consequences of the
emergency continue and the Authorised Person is able demonstrate
that it is taking all practical steps to deal with those consequences, to
comply with the Rule, and to mitigate losses and potential losses to its
customers or users.

(3) An Authorised Person must notify the DFSA as soon as practical of
the emergency and of the steps it is taking and proposes to take to
deal with the consequences of the emergency.

Guidance

1. Procedures for notification to the DFSA are set out in section 11.11.

2. The Rules in section 6.3 do not affect the powers of the DFSA under Article 26 of the
Markets Law 2012.

6.4 Disclosure of regulatory status

6.4.1 An Authorised Person must not misrepresent its status expressly or by
implication.

6.4.2 (1) An Authorised Person must take reasonable care to ensure that every
key business document which is in connection with the Authorised
Person carrying on a Financial Service in or from the DIFC includes
one of the disclosures under this Rule.

(2) A key business document includes letterhead whether issued by post,
fax or electronic means, terms of business, client agreements, written
promotional materials, business cards, prospectuses and websites but

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does not include compliment slips, account statements or text
messages.

(3) The disclosure required under this Rule is:

(a) ‘Regulated by the Dubai Financial Services Authority’; or

(b) ‘Regulated by the DFSA’.

(4) The DFSA logo must not be reproduced without express written
permission from the DFSA and in accordance with any conditions for
use.

(5) Rules 6.4.2(1) to (4) also apply to the operation and administration of
an Official List of Securities by an Authorised Market Institution.

6.5 Location of offices

6.5.1 (1) Where an Authorised Person or a Person who has submitted an
application for authorisation to carry on one or more Financial
Services, is a Body Corporate incorporated in the DIFC, its head office
and registered office must be in the DIFC.

(2) Where an Authorised Person or a Person who has submitted an
application for authorisation to carry on one or more Financial
Services, is a partnership established under the DIFC Limited
Partnership Law or the DIFC General Partnership Law, its head office
must be in the DIFC.

Guidance

1. In considering the location of an Authorised Firm’s or Authorised Market
Institution’s head office, the DFSA will have regard to the location of its directors,
partners and senior management and to the main location of its day-to-day
operational, control, management and administrative arrangements and will judge
matters on a case by case basis.

2. Under the fit and proper test for Authorised Firms and the Licensing Requirements
for Authorised Market Institutions, an Authorised Firm or Authorised Market
Institution which does not satisfy the DFSA with respect to the location of its offices
will, on this point alone not be considered fit and proper or able to satisfy the
Licensing Requirements.

6.6 Close links

6.6.1 (1) Where an Authorised Person or a Person who has submitted an
application for authorisation to carry on one or more Financial
Services has Close Links with another Person, the DFSA must be
satisfied that those Close Links are not likely to prevent the effective
supervision by the DFSA of the Authorised Person.

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50 GEN/VER33/07-13
(2) If requested by the DFSA the Authorised Person must submit a Close
Links report or notification, in a form specified by the DFSA. This may
be requested on an ad hoc or periodic basis.

Guidance

1. Procedures for notification to the DFSA are set out in section 11.11.

2. Under the fit and proper test for Authorised Firms and the Licensing Requirements
for Authorised Market Institutions, an Authorised Firm or Authorised Market
Institution which does not satisfy the DFSA with respect of its Close Links will, on
this point alone, not be considered fit and proper or able to satisfy the Licensing
Requirements.

6.7 Complaints against the DFSA

Guidance

1. A Person who feels he has been adversely affected by the manner in which the DFSA
has carried out its functions may make a complaint to the DFSA about its conduct or
the conduct of its Employees.

2. A complaint must be in writing and should be addressed to the Chief Executive of the
DFSA. The complaint will be dealt with by the DFSA in a timely manner.

6.8 Public register

Maintenance and publication

6.8.1 The registers required to be maintained and published by the DFSA pursuant
to Article 62 shall be published and maintained in either or both of the
following manners:

(a) by maintaining hard copy registers which are made available for
inspection at the premises of the DFSA during normal business hours;
or

(b) by maintaining an electronic version of the registers and making the
information from those registers available through the DFSA website.

6.9 Communication with the DFSA

6.9.1 An Authorised Person must ensure that any communication with the DFSA is
conducted in the English language.

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7 AUTHORISATION

7.1 Application

7.1.1 (1) This chapter applies, subject to (2), to every Person who is:

(a) an Authorised Firm;

(b) an applicant for a Licence to be an Authorised Firm;

(c) an Authorised Individual;

(d) an applicant for Authorised Individual status; or

(e) a Controller of a Person referred to in (a) or (b).

(2) This chapter does not apply to a Person intending to:

(a) Operate an Exchange;

(b) Operate a Clearing House; or

(c) Operate a Representative Office.

Guidance

1. This chapter outlines DFSA’s authorisation requirements for an Authorised Firm and
Authorised Individual.

2. The DFSA’s requirements for authorisation of:

a. Authorised Market Institutions are covered by the AMI module; and

b. Representative Offices are covered by the REP module.

3. The DFSA’s requirements for registration of DNFBPs are found in the AML module.

4. This chapter should be read in conjunction with the RPP Sourcebook which sets out
DFSA’s general regulatory policy and processes. Some additional processes may be
outlined in other chapters of this module.

5. Chapter 2 of the RPP Sourcebook sets out DFSA’s approach to the authorisation of
undertakings and individuals to conduct Financial Services or Licensed Functions, as
the case may be.

7.2 Application for a Licence

7.2.1 A Person, who intends to carry on one or more Financial Services in or from
the DIFC must apply to the DFSA for a Licence, in accordance with the Rules
in this section.

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7.2.2 (1) The DFSA will only consider an application for a Licence from a
Person who, subject to (2), (3) and (4), is:

(a) a Body Corporate; or

(b) a Partnership;

and who is not an Authorised Market Institution.

(2) If the application is in respect of either or both of the following
Financial Services:

(a) Effecting Contracts of Insurance; or

(b) Carrying Out Contracts of Insurance,

the applicant must be a Body Corporate.

(3) If the application is in respect of the Financial Service of Accepting
Deposits, the applicant must be a Body Corporate or a Partnership.

(4) If the application is in respect of the Financial Service of Managing a
Collective Investment Fund or Acting as the Trustee of a Fund, the
applicant must be a Body Corporate.

Guidance

Section 2.2.8 of the RPP Sourcebook sets out matters which the DFSA takes into
consideration when making an assessment under Rule 7.2.2.

7.2.3 A Person licensed by the Emirates Securities and Commodities Authority to
trade on an U.A.E. exchange will not be granted a Licence by the DFSA
unless that Person has the prior approval of the Emirates Securities and
Commodities Authority.

7.2.4 A Person applying for a Licence must complete and submit the appropriate
form or forms in AFN.

Guidance

A Person submitting an application under Rule 7.2.4 is required to:

a. pay the appropriate application fee as set out in FER; and

b. include information relating to its Controllers, completed by the relevant Controllers
themselves, in the appropriate form in AFN.

Consideration and assessment of applications

7.2.5 In order to become authorised to carry on one or more Financial Services, the
applicant must demonstrate to the satisfaction of the DFSA that it:

(a) has adequate resources, including financial resources;

(b) is fit and proper; and

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(c) has adequate compliance arrangements, including policies and
procedures, that will enable it to comply with all the applicable legal
requirements, including the Rules.

Adequate resources

7.2.6 In assessing whether an applicant has adequate resources, the DFSA will
consider:

(a) how the applicant will comply with the applicable provisions of PIB or
PIN;

(b) the provision the applicant makes in respect of any liabilities, including
contingent and future liabilities;

(c) the means by which the applicant and members of its Group manage
risk in connection with their business; and

(d) the rationale for, and basis of, the applicant’s business plan.

Guidance

A Credit Rating Agency is not subject to any specific capital requirements in PIB. Instead, it is
required, pursuant to Rules 4.2.4 and 7.2.6 to have and maintain adequate financial resources
to manage its affairs prudently and soundly.

Fitness and propriety

7.2.7 (1) In assessing whether an applicant is fit and proper, the DFSA will
consider:

(a) the fitness and propriety of the members of its Governing
Body;

(b) the suitability of the applicant’s Controllers or any other
Person;

(c) the impact a Controller might have on the applicant’s ability to
comply with the applicable requirements;

(d) the Financial Services concerned;

(e) the activities of the applicant and any associated risks that
those activities pose to the DFSA’s objectives described under
Article 8(3) of the Regulatory Law 2004;

(f) whether the applicant’s affairs will be conducted and managed
in a sound and prudent manner;

(g) any matter which may harm or may have harmed the integrity
or the reputation of the DFSA or DIFC; and

(h) any other relevant matters.

(2) The DFSA will, in assessing the matters in (1), consider the
cumulative effect of factors which, if taken individually, may be

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54 GEN/VER33/07-13
regarded as insufficient to give reasonable cause to doubt the fitness
and propriety of an applicant.

Guidance

Section 2.2 of the RPP Sourcebook sets out matters which the DFSA takes into
consideration when making an assessment under Rule 7.2.7.

Compliance arrangements

7.2.8 In assessing whether an applicant has adequate compliance arrangements,
the DFSA will consider whether it has:

(a) clear and comprehensive policies and procedures relating to
compliance with all applicable legal requirements including the Rules;

(b) adequate means to implement those policies and procedures and
monitor that they are operating effectively and as intended.

7.2.9 In assessing an application for a Licence, the DFSA may:

(a) make any enquiries which it considers appropriate, including enquiries
independent of the applicant;

(b) require the applicant to provide additional information;

(c) require the applicant to have information on how it intends to ensure
compliance with a particular Rule;

(d) require any information provided by the applicant to be verified in any
way that the DFSA specifies; and

(e) take into account any information which it considers relevant.

7.2.10 (1) In assessing an application for a Licence the DFSA may, by means of
written notice, indicate the legal form that the applicant may adopt to
enable authorisation to be granted.

(2) Where the DFSA thinks it appropriate it may treat an application made
by one legal form or Person as having been made by the new legal
form or Person.

7.2.11 In assessing an application for a Licence authorising the applicant to Operate
an Alternative Trading System, the DFSA will have regard to, but is not limited
to, considering the following matters:

(a) whether the establishment of an Alternative Trading System is, or is
likely to be, in the interests of the Financial Services and Markets
industry;

(b) whether the Alternative Trading System will or is likely to lead to more
efficient price discovery of, or deepen liquidity in, an Investment; and

(c) whether there is any risk of market fragmentation, loss of liquidity or
inefficiency in price discovery as a result of the proposed Alternative
Trading System operation.

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7.3 Application for an endorsement for Retail Clients

7.3.1 (1) An Authorised Firm may apply to the DFSA for an endorsement on its
Licence, including variation of such an endorsement, to carry on a
Financial Service with or for a Retail Client.

(2) The DFSA may in its absolute discretion refuse to grant an
endorsement or a variation of an endorsement pursuant to an
application under (1).

(3) Upon refusing to grant an endorsement or a variation to an
endorsement, the DFSA must without undue delay inform the
applicant in writing of such refusal and, if requested by the applicant,
the reasons for such refusal.

(4) The Regulatory Appeals Committee has jurisdiction to hear and
determine any appeal in relation to a decision to refuse an application
for an endorsement or a variation to an endorsement made under this
section.

7.4 Licensed Functions and Authorised individuals

7.4.1 (1) Pursuant to Article 43 of the Regulatory Law 2004, the functions
specified in Rules 7.4.2 to 7.4.9 are Licensed Functions.

(2) An individual must not, subject to, (3), (4) and Rule 11.6.1, carry out a
Licensed Function for an Authorised Firm unless he is authorised by
the DFSA as an Authorised Individual to carry out that Licensed
Function for that Authorised Firm.

(3) The prohibition in (2) does not apply to a function performed by a
registered insolvency practitioner (subject to the restrictions defined
within Article 88 of the Insolvency Law 2009) if the practitioner is:

(a) acting as a nominee in relation to a company voluntary
arrangement within the meaning of Article 8 of the Insolvency
Law 2009;

(b) appointed as a receiver or administrative receiver within the
meaning of Article 14 of the Insolvency Law 2009;

(c) appointed as a liquidator in relation to a members’ voluntary
winding up within the meaning of Article 32 of the Insolvency
Law 2009;

(d) appointed as a liquidator in relation to a creditors’ voluntary
winding up within the meaning of Article 32 of the Insolvency
Law 2009; or

(e) appointed as a liquidator or provisional liquidator in relation to
a compulsory winding up within the meanings of Article 58 and
59 of the Insolvency Law 2009.

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56 GEN/VER33/07-13

(4) The prohibition in (2) does not apply to individuals appointed to act as
managers of the business of an Authorised Firm or Authorised Market
Institution as directed by the DFSA under Article 88 of the Regulatory
Law 2004.

Senior Executive Officer

7.4.2 The Senior Executive Officer function is carried out by an individual who:

(a) has, either alone or jointly with other Authorised Individuals, ultimate
responsibility for the day-to-day management, supervision and control
of one or more (or all) parts of an Authorised Firm’s Financial Services
carried on in or from the DIFC; and

(b) is a Director, Partner or Senior Manager of the Authorised Firm.

Licensed Director

7.4.3 Subject to Rule 7.5.4, the Licensed Director function is carried out by an
individual who is a Director of an Authorised Firm which is a Body Corporate.

Licensed Partner

7.4.4 The Licensed Partner function is carried out, in the case of an Authorised
Firm which is a Partnership or Limited Liability Partnership, by an individual
specified in Rule 7.5.5.

Finance Officer

7.4.5 The Finance Officer function is carried out by an individual who is a Director,
Partner or Senior Manager of an Authorised Firm who has responsibility for
the Authorised Firm’s compliance with the applicable Rules in PIN or PIB.

Compliance Officer

7.4.6 The Compliance Officer function is carried out by an individual who is a
Director, Partner or Senior Manager of an Authorised Firm who has
responsibility for compliance matters in relation to the Authorised Firm’s
Financial Services.

Senior Manager

7.4.7 The Senior Manager function is carried out by an individual who is
responsible either alone or jointly with other individuals for the management,
supervision or control of one or more parts of an Authorised Firm’s Financial
Services who is:

(a) an Employee of the Authorised Firm; and

(b) not a Director or Partner of the Authorised Firm.

Guidance

In respect of a Fund, the DFSA would expect the Fund Manager to appoint at least one
individual other than the Senior Executive Officer to carry out Senior Manager functions in
relation to the Fund such as managing operational risk and other internal controls.

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Money Laundering Reporting Officer

7.4.8 The Money Laundering Reporting Officer function is carried out by an
individual who is a Director, Partner or Senior Manager of an Authorised Firm
and who has responsibility for the implementation of an Authorised Firm’s anti
money laundering policies, procedures, systems and controls and day to day
oversight of its compliance with the Rules in AML and any relevant anti
money laundering legislation applicable in the DIFC.

Responsible Officer

7.4.9 The Responsible Officer function is carried out by an individual who:

(a) has significant responsibility for the management of one or more
aspects of an Authorised Firm’s affairs;

(b) exercises a significant influence on the firm as a result of (a); and

(c) is not an Employee of the Authorised Firm.

Guidance

1. The Licensed Function of Responsible Officer applies to an individual employed by a
Controller or other Group company who is not an Employee of the Authorised Firm,
but who has significant responsibility for, or for exercising a significant influence on,
the management of one or more aspects of the Authorised Firm’s business.

2. Examples of a Responsible Officer might include an individual responsible for the
overall strategic direction of an Authorised Firm or a regional manager to whom a
Senior Executive Officer reports and from whom he takes direction.

7.4.10 An Authorised Individual may perform one or more Licensed Functions for
one or more Authorised Firms.

Guidance

1. In considering whether to grant an individual Authorised Individual status with
respect to more than one Authorised Firm, the DFSA will consider each Licensed
Function to be carried out and the allocation of responsibility for that individual
among the Authorised Firms.

2. In the above situation the DFSA will need to be satisfied that the individual will be
able to carry out his role effectively, is fit and proper to do so, and that there are no
conflicts of interest or that any actual or potential conflicts of interest are
appropriately managed.

7.5 Mandatory appointments

7.5.1 (1) An Authorised Firm must, subject to (2), make the following
appointments and ensure that they are held by one or more
Authorised Individuals at all times:

(a) Senior Executive Officer;

(b) Finance Officer;

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58 GEN/VER33/07-13

(c) Compliance Officer; and

(d) Money Laundering Reporting Officer.

(2) An Authorised Firm which is a Credit Rating Agency:

(a) need not make the appointment referred to in (1)(b) and (d);
and

(b) must ensure that the appointments referred to in 1(a) and (c)
are held by separate Authorised Individuals at all times.

Guidance

1. This Guidance addresses a range of circumstances:

a. one individual performing more than one function in a single firm, as
contemplated in Rule 7.5.1;

b. more than one individual performing one function in a single firm, not
addressed by that Rule;

c. one individual performing a single function in more than one firm, also not
addressed by that Rule.

2. The DFSA will only authorise an individual to perform more than one Licensed
Function or combine Licensed Functions with other functions where it is satisfied
that the individual is fit and proper to perform each Licensed Function or
combination of Licensed Functions.
3. In the above situation the DFSA will need to be satisfied that the individual will be
able to carry out his role effectively, is fit and proper to do so, and that there are no
conflicts of interest or that any actual or potential conflicts of interest are
appropriately managed.

4. Notwithstanding this Rule, an Authorised Firm would generally be expected to
separate the roles of Compliance Officer and Senior Executive Officer. In addition,
the roles of Compliance Officer, Finance Officer and Money Laundering Reporting
Officer would not be expected to be combined with any other functions unless
appropriate monitoring and control arrangements independent of the individual
concerned will be implemented by the Authorised Firm. This may be possible in the
case of a Branch, where monitoring and controlling of the individual (carrying out
more than one role in the Branch) is conducted from the firm’s home state by an
appropriate individual for each of the relevant Licenced Functions. However, it is
recognised that, on a case by case basis, there may be exceptional circumstances in
which this may not always be practical or possible.

5. In what it considers to be exceptional circumstances, the DFSA may register more
than one individual to perform the Licensed Function of Compliance Officer in
respect of different internal business divisions within a large Authorised Firm. In this
regard the DFSA may consider, amongst other things, the nature, scale and
complexity of the activities of the firm, the clarity of demarcation between areas of
responsibility, the potential for gaps in responsibility, and processes of
communication with the DFSA.

6. The DFSA may also register an individual as the Compliance Officer for more than
one Authorised Firm. The DFSA will only do this where it is satisfied that the
individual is able to carry out his functions effectively in each firm taking into
consideration factors such as the amount and nature of business conducted by the
firms. Each Authorised Firm has a duty under GEN 5 to monitor its compliance

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59 GEN/VER33/07-13
arrangements to ensure, as far as reasonably practicable, that it complies with all
legislation applicable in the DIFC.

7.5.2 The Authorised Individuals referred to in Rule 7.5.1(a), (c) and (d) must be
resident in the U.A.E.

Guidance

1. In appropriate circumstances, the DFSA may waive the requirement for a
Compliance Officer or MLRO to be resident in the UAE. In determining whether
to grant a waiver, the DFSA will consider a range of factors on a case by case basis
focused on whether the firm can demonstrate that it has appropriate compliance
arrangements (see GEN section 5.3). These factors may include, but are not limited
to: the nature, scale and complexity of the activities of the firm; the ability of a
remote officer to carry out his functions in differing time zones and a differing
working week; the size, resourcing and capabilities of a remote compliance
function; the ability of a remote officer to liaise and communicate readily with the
DFSA; and the competency and capability of a remote officer and whether the
remote officer is able effectively to undertake or supervise regular compliance
monitoring and keep up to date with applicable Rules.

2. The DFSA will also take into account factors such as the relevant regulatory
experience of the proposed Authorised Individual and whether the applicant firm
has previously been subject to financial services regulation.

7.5.3 In the case of a Trust Service Provider, the Authorised Individuals referred to
in Rule 7.5.1 (c) and (d) must not act also as trustees on behalf of the Trust
Service Provider.

7.5.4 An Authorised Firm which is a Body Corporate (other than a Limited Liability
Partnership) whose head office and registered office are located in the DIFC,
must register with the DFSA all of its Directors as Licensed Directors.

7.5.5 (1) In the case of an Authorised Firm which is a partnership established
under either the DIFC General Partnership Law or Limited Liability
Partnership Law, the Licensed Partner function must be carried out by:

(a) each individual Partner who must be registered as a Licensed
Partner; and

(b) in the case of a Partner which is a Body Corporate, by an
individual nominated by that Body Corporate and registered as a
Licensed Partner to act on its behalf.

(2) In the case of an Authorised Firm which is a partnership established
under the DIFC Limited Partnership Law, the Licensed Partner function
must be carried out by:

(a) each individual General Partner who must be registered as a
Licensed Partner; and

(b) in the case of a General Partner which is a Body Corporate, by an
individual nominated by that Body Corporate and registered as a
Licensed Partner to act on its behalf.

Guidance

An Authorised Firm that is a Branch is not required to register its Directors as Licensed
Directors under Rule 7.5.4 or its Partners as a Licensed Partner under Rule 7.5.5.

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60 GEN/VER33/07-13

7.6 Application for Authorised Individual status

7.6.1 In submitting applications for Authorised Individual status, both the individual
and Authorised Firm must complete and submit the appropriate form in AFN.

7.6.2 When an individual and an Authorised Firm apply to the DFSA for that
individual to be an Authorised Individual, the individual must satisfy the DFSA
that he is a fit and proper person to carry out the role.

Consideration and assessment of applications

7.6.3 An individual will only be authorised to carry on one or more Licensed
Functions if the DFSA is satisfied that the individual is fit and proper to be an
Authorised Individual. In making this assessment, the DFSA will consider:

(a) the individual’s integrity;

(b) the individual’s competence and capability;

(c) the individual’s financial soundness;

(d) the individual’s proposed role within the Authorised Firm; and

(e) any other relevant matters.

Guidance

Section 2.3 of the RPP Sourcebook sets out matters which the DFSA takes into consideration
when making an assessment of the kind under Rule 7.6.3.

7.6.4 In Rule 7.6.3, an individual may not be considered as fit and proper where:

(a) he is bankrupt;

(b) he has been convicted of a serious criminal offence; or

(c) he is incapable, through mental or physical incapacity, of managing
his affairs.

7.6.5 In assessing an application for Authorised Individual status, the DFSA may:

(a) make any enquiries which it considers appropriate, including enquiries
independent of the applicant;

(b) require the individual or Authorised Firm to provide additional
information;

(c) require any information provided by the individual or Authorised Firm
to be verified in any way specified by the DFSA; and

(d) take into account any information which it considers appropriate.

7.6.6 An Authorised Firm must not permit an individual to perform a Licensed
Function on its behalf, except as permitted by section 11.6, unless that
individual is an Authorised Individual who has been assessed by the

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Authorised Firm as competent to perform that Licensed Function in
accordance with Rule 7.6.7.

7.6.7 In assessing the competence of an individual, an Authorised Firm must:

(a) obtain details of the knowledge and skills of the individual in relation to
the knowledge and skills required for the role;

(b) take reasonable steps to verify the relevance, accuracy and
authenticity of any information acquired;

(c) determine whether the individual holds any relevant qualifications with
respect to the Licensed Function or Licensed Functions performed, or
proposed to be to performed, within the Authorised Firm;

(d) determine the individual’s relevant experience; and

(e) determine the individual’s knowledge of the Authorised Firm’s relevant
systems and procedures with respect to the type of business that is to
be, or is being, conducted by the individual on behalf of the Authorised
Firm.

7.6.8 An Authorised Firm must be satisfied that an Authorised Individual:

(a) continues to be competent in his proposed role;

(b) has kept abreast of relevant market, product, technology, legislative
and regulatory developments; and

(c) is able to apply his knowledge.

7.6.9 The Authorised Firm is responsible for the conduct of its Authorised
Individuals and for ensuring that they remain fit and proper to carry out their
role.

Guidance

In considering whether an Authorised Individual remains fit and proper, the Authorised Firm
should consider those matters in section 3.2 of the RPP Sourcebook and the notification
requirements in section 11.10 of this module.

7.6.10 Before lodging an application with the DFSA, an Authorised Firm must make
reasonable enquiries as to an individual’s fitness and propriety to carry out a
Licensed Function.

7.6.11 An Authorised Firm must not lodge an application if it has reasonable grounds
to believe that the individual is not fit and proper to carry out the Licensed
Function.

Systems and controls

7.6.12 An Authorised Firm must have appropriate arrangements in place to ensure
that an individual assessed as being competent under Rule 7.6.6 maintains
his competence.

7.6.13 An Authorised Firm must ensure, in the case of individuals seeking to perform
the Licensed Functions of Senior Executive Officer, Money Laundering

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62 GEN/VER33/07-13
Reporting Officer, or Compliance Officer, that such individuals are able to
demonstrate sufficient knowledge of relevant anti money laundering
requirements.

Guidance

In considering whether individuals have sufficient knowledge of relevant anti money
laundering requirements, the DFSA may be satisfied where the individual can demonstrate
receipt of appropriate training specifically relevant to such requirements.

7.6.14 An Authorised Firm must establish and maintain systems and controls which
will enable it to comply with Rules 7.6.6 to 7.6.9.

7.6.15 (1) An Authorised Firm must keep records of the assessment process
undertaken for each individual under this chapter.

(2) These records must be kept for a minimum of six years from the date
of the assessment.

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8 ACCOUNTING AND AUDITING

8.1 Application

8.1.1 (1) This chapter applies subject to (2) to every:

(a) Authorised Person other than a Representative Office;

(b) applicant for registration as an auditor with the DFSA; and

(c) Auditor registered with the DFSA.

(2) This chapter does not apply to applicants for registration as Auditors in
relation to Public Listed Companies.

Guidance

1. Chapter 4 of the Islamic Finance Rules (IFR) contains additional accounting and
audit requirements that are specific to Islamic Financial Business.

2. Chapter 5 of the Markets Rules (MKT) contains the audit requirements that are
specific to a Public Listed Company including registration criteria etc.

8.1.2 In this chapter in relation to an Authorised Person which is a Domestic Firm a
reference to “auditor” include references to an “Auditor”.

8.2 Accounting standards

8.2.1 An Authorised Person must prepare and maintain all financial accounts and
statements in accordance with the International Financial Reporting
Standards (IFRS).

8.3 Accounting records and regulatory returns

8.3.1 Every Authorised Person must keep Accounting Records which are sufficient
to show and explain transactions and are such as to:

(a) be capable of disclosing the financial position of the Authorised
Person on an ongoing basis; and

(b) record the financial position of the Authorised Person as at its financial
year end.

8.3.2 Accounting Records must be maintained by an Authorised Person such as to
enable its Governing Body to ensure that any accounts prepared by the
Authorised Person comply with the legislation applicable in the DIFC.

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64 GEN/VER33/07-13
8.3.3 An Authorised Person’s Accounting Records must be:

(a) retained by the Authorised Person for at least ten years from the date
to which they relate;

(b) at all reasonable times, open to inspection by the DFSA or the auditor
of the Authorised Person; and

(c) if requested by the DFSA capable of reproduction, within a reasonable
period not exceeding 3 business days, in hard copy and in English.

8.3.4 All regulatory returns prepared by the Authorised Firm must be prepared and
submitted in accordance with the requirements set out in PIB or PIN as
applicable.

Changes to the financial year end

8.3.5 (1) If an Authorised Firm is a Domestic Firm and intends to change its
financial year end, it must obtain the DFSA’s prior consent before
implementing the change.

(2) The application for consent must include reasons for the change.

(3) The DFSA may require the Authorised Firm to obtain written
confirmation from its auditor that the change of financial year end
would not result in any significant distortion of the financial position of
the Authorised Firm.

8.3.6 If an Authorised Firm is not a Domestic Firm and intends to change its
financial year, it must provide the DFSA with reasonable advance notice prior
to the change taking effect.

8.4 Appointment and termination of auditors

8.4.1 An Authorised Person must:

(a) notify the DFSA of the appointment of an auditor, including the name
and business address of the auditor and the date of the
commencement of the appointment;

(b) prior to the appointment of the auditor, take reasonable steps to
ensure that the auditor has the required skills, resources and
experience to audit the business of the Authorised Person for which
the auditor has been appointed; and

(c) if it is a Domestic Firm, ensure that the auditor, at the time of
appointment and for the duration of the engagement as auditor, is
registered with the DFSA.

8.4.2 An Authorised Person must notify the DFSA immediately if the appointment of
the auditor is or is about to be terminated, or on the resignation of its auditor,
giving the reasons for the cessation of the appointment.

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8.4.3 An Authorised Person must appoint an auditor to fill any vacancy in the office
of auditor and ensure that the replacement auditor can take up office at the
time the vacancy arises or as soon as reasonably practicable.

8.4.4 (1) An Authorised Person must take reasonable steps to ensure that the
relevant audit staff of the auditor are independent of and not subject to
any conflict of interest with respect to the Authorised Person.

(2) An Authorised Person must notify the DFSA if it becomes aware, or
has reason to believe, that the relevant audit staff of the auditor are no
longer independent of the Authorised Person, or have a conflict of
interest which may affect their judgement in respect of the Authorised
Person.

Guidance

1. The relevant staff of an auditor are independent if their appointment or retention by
an Authorised Person is not contrary to any applicable ethical guidance issued by the
professional supervisory body.

2. An Authorised Person should consider rotating the appointed relevant staff of the
auditor every five years to ensure that the relevant staff of the auditor remains
independent.

3. Additional requirements relevant to Auditors appointed for a Fund (see CIR Rule
9.3.4) apply independently of the requirements in the Rules in this Chapter.

8.4.5 If requested by the DFSA, an Authorised Person which carries on Financial
Services through a Branch must provide the DFSA with information on its
appointed or proposed auditor with regard to the auditor’s, skills, experience
and independence.

8.4.6 Where an auditor has not been appointed by an Authorised Person, the
DFSA may direct an Authorised Person to appoint an auditor in accordance
with the requirements in this chapter.

8.4.7 Where an auditor appointed by an Authorised Person is in the opinion of the
DFSA not suitable to audit that Authorised Person, the DFSA may direct that
auditor to remove itself as the auditor of that Authorised Person.

8.4.8 The Regulatory Appeals Committee has jurisdiction to hear and determine
any appeal in relation to a direction made under Rule 8.4.7.

8.5 Co-operation with auditors

8.5.1 An Authorised Person must take reasonable steps to ensure that it and its
Employees:

(a) provide such assistance as the auditor reasonably requires to
discharge its duties;

(b) give the auditor right of access at all reasonable times to relevant
records and information;

(c) do not interfere with the auditor’s ability to discharge its duties;

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66 GEN/VER33/07-13

(d) do not provide false or misleading information to the auditor; and

(e) report to the auditor any matter which may significantly affect the
financial position of the Authorised Person.

8.6 Function of the auditor

8.6.1 An Authorised Firm or Authorised Market Institution, as applicable, must in
writing require its auditor to:

(a) conduct an audit of the Authorised Person’s accounts in accordance
with the requirements of the relevant standards published by the
International Auditing and Assurance Standards Board (IAASB) in
respect of its financial business;

(b) produce a report on the audited accounts which states:

(i) whether, in the auditor’s opinion, the accounts have been
properly prepared in accordance with the requirements
imposed by this chapter;

(ii) in particular, whether the accounts give a true and fair view of
the financial position of the Authorised Person for the financial
year and of the state of the Authorised Person’s affairs at the
end of the financial year end; and

(iii) any other matter or opinion relating to the requirements of this
chapter;

(c) produce an Auditor’s Annual Report which states whether:

(i) the auditor has audited the Authorised Person’s annual
financial statements in accordance with the IAASB;

(ii) the auditor has carried out any other procedures considered
necessary, having regard to the IAASB;

(iii) the auditor has received all necessary information and
explanations for the purposes of preparing this report to the
DFSA;

(iv) (in the case of an Authorised Firm) in the auditor’s opinion, the
regulatory returns specified by the applicable Rules in PIN or
PIB have been properly prepared by the Authorised Firm and
provide a true and fair representation of the financial position
of the Authorised Firm, as at the date of the Authorised Firm’s
financial year end;

(v) in the auditor’s opinion, the Authorised Person’s regulatory
returns to the DFSA have been properly reconciled with the
appropriate audited accounts;

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(vi) in the case of an Authorised Firm, in the auditor’s opinion, that
an Authorised Firm which is subject to an expenditure based
requirement has calculated the expenditure based requirement
in accordance with the Rules;

(vii) in the auditor’s opinion, the Authorised Person’s financial
resources as at its financial year end have been properly
calculated in accordance with the Rules and are sufficient to
meet the relevant prudential requirements or minimum
financial resources requirement; and

(viii) in the case of an Authorised Firm, in the auditor’s opinion, the
Authorised Firm has kept proper accounting records, in
compliance with the applicable Rules in PIN or PIB;

(d) produce, if the Authorised Firm controls or holds Client Money, a
Client Money Auditor’s Report which states whether, in the opinion of
the auditor:

(i) the Authorised Firm has maintained throughout the year
systems and controls to enable it to comply with the relevant
provisions of COB chapter 6 and, if applicable, COB App 5;

(ii) the Authorised Firm’s controls are such as to ensure that Client
Money is identifiable and secure at all times;

(iii) any of the requirements in COB chapter 6 and the Client
Money Provisions have not been met;

(iv) if applicable, Client Money belonging to Segregated Clients
has been segregated in accordance with the Client Money
Provisions;

(v) if applicable, the Authorised Firm was holding and controlling
an appropriate amount of Client Money in accordance with
COB chapter 6 and with the Client Money Provisions as at the
date on which the Authorised Firm’s audited balance sheet
was prepared; and

(vi) if applicable, there have been any material discrepancies in the
reconciliation of Client Money;

(e) produce, if the Authorised Firm controls or holds Insurance Monies, an
Insurance Monies Auditor’s Report which states whether, in the
opinion of the auditor:

(i) the Authorised Firm has maintained throughout the year
systems and controls to enable it to comply with the relevant
provisions of COB section 7.12;

(ii) the Authorised Firm’s controls are such as to ensure that
Insurance Monies are identifiable and secure at all times;

(iii) any of the requirements in COB section 7.12 have not been
met;

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68 GEN/VER33/07-13
(iv) if applicable, the Authorised Firm was holding and controlling
an appropriate amount of Insurance Monies in accordance with
COB section 7.12 as at the date on which the Authorised
Firm’s audited balance sheet was prepared; and
(v) if applicable, there have been any material discrepancies in the
reconciliation of Insurance Monies;

(f) produce, if the Authorised Firm holds or controls Client Investments,
Arranges Custody or Provides Custody in or from the DIFC, a Safe
Custody Auditor’s Report in respect of such business as applicable,
which states whether, in the opinion of the auditor:

(i) the Authorised Firm has, throughout the year, maintained
systems and controls to enable it to comply with the Safe
Custody Provisions in COB App6;

(ii) the Safe Custody Investments are registered, recorded or held
in accordance with the Safe Custody Provisions;

(iii) there have been any material discrepancies in the
reconciliation of Safe Custody Investments; and

(iv) any of the requirements of the Safe Custody Provisions have
not been met;

(g) submit the reports produced pursuant to Rules 8.6.1(b)-8.6.1(f) above
to the Authorised Person; and

(h) notify the DFSA in writing if he resigns due to significant concerns
which have previously been raised with senior management of the
Authorised Person and which have not been addressed.

Guidance

In producing a Safe Custody Auditor’s Report an auditor will need to consider which parts of
COB App6 are relevant to the Authorised Firm and only include an opinion to the extent
relevant to the Authorised Firm’s activity. For example, the application of COB App6 to an
Authorised Firm carrying on the Financial Service of Arranging Custody is much more limited
than its application to an Authorised Firm carrying on the Financial Service of Providing
Custody. In this particular instance an auditor producing a Safe Custody Auditor’s Report for
an Authorised Firm carrying on the Financial Service of Arranging Custody, will generally
only need to consider COB App Rules 6.5.1(1), 6.5.1(2), 6.5.1(3), 6.5.2 and 6.7.1(1).

8.6.2 An Authorised Person must submit any auditor’s reports and financial
statements required by this chapter to the DFSA within four months of the
Authorised Person’s financial year end.

8.6.3 If requested, an Authorised Person must provide to any Person a copy of its
most recent audited accounts, together with the auditor’s report referred to in
Rule 8.6.1(b). If the copy is made available in printed form, the Authorised
Person may make a charge to cover reasonable costs incurred in providing
the copy.

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8.7 Registration of Auditors

Registration of an Auditor

8.7.1 A Person intending to audit Authorised Firms and Authorised Market
Institutions (that are Domestic Firms), or Domestic Funds must apply to the
DFSA for registration in accordance with the Rules in this Chapter.

Guidance

Applicants and Auditors are required to pay fees as prescribed in FER.

8.7.2 An applicant for registration must complete and submit the appropriate form in
AFN, supported by such additional material as may be required by the DFSA.

Guidance

Applicants and Auditors are required to pay fees as prescribed in FER.

Consideration of the application

8.7.3 (1) An applicant for registration must be able to demonstrate to the DFSA’s
satisfaction that:

(a) it is fit and proper as provided in (2);

(b) it has professional indemnity insurance as required under
Section 8.17;

(c) it has adequate systems, procedures and controls to ensure due
compliance with:

(i) the International Standards on Auditing;

(ii) the International Standards on Quality Control; and

(iii) the Code of Ethics for Professional Accountants;

(d) where applicable, it has adequate systems, procedures and
controls to ensure due compliance with:

(i) the Islamic Accounting and Auditing Standards; and

(ii) the Code of Ethics for Accountants and Audit Firms of
Islamic Financial Institutions;

(e) it is controlled by Persons each of whom hold a Recognised
Professional Qualification from a Recognised Professional Body;
and

(f) it has complied with any other requirement as specified by the
DFSA.

(2) For the purposes of assessing whether an applicant for registration
meets the fit and proper requirement under (1)(a), the DFSA will
consider:

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70 GEN/VER33/07-13

(a) the application and submissions;

(b) background and history;

(c) the ownership and the Group structure;

(d) resources, including human and technological;

(e) whether the applicant’s affairs are likely to be conducted and
managed in a sound and prudent manner; and

(f) any other matter considered relevant by the DFSA.

(3) For the purposes of (1)(e):

(a) “control” means:
(i) in a body corporate, a majority of the directors and a
majority of the votes of the shareholders; or

(ii) in a partnership (except a limited partnership) means a
majority of the partners unless there are only two
partners in which case the partner holding a Recognised
Professional Qualification must have the casting vote;
and

(iii) in a limited partnership means a majority of the general
partners unless there are only two partners in which case
the partner holding a Recognised Professional
Qualification must have the casting vote;

(b) “majority” means:

(i) where under the Auditor’s constitution matters are
decided on by the exercise of voting rights, a majority of
the rights to vote on all, or substantially all, matters; or

(ii) in any other case a majority of the Persons having rights
under the constitution of the Auditor to enable them to
direct its overall policy or alter its constitution.

8.7.4 The DFSA may impose in its absolute discretion any terms or conditions on
the registration.

8.8 Regulatory appeals

8.8.1 An applicant may appeal to the Regulatory Appeals Committee against any
refusal to grant registration, or any condition of registration imposed under
Rule 8.7.4 and the Regulatory Appeals Committee has jurisdiction to hear any
such appeal.

Guidance

Under Article 98 of the Regulatory Law 2004, the DFSA may in its absolute discretion grant
or refuse to grant registration.

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8.9 Obligations of Auditors and Audit Principals

8.9.1 An Auditor must:

(a) continue to comply with all its obligations including those in Chapter 8;

(b) comply with the applicable International Standards of Auditing, Quality
Control and Codes of Ethics referred to in Rule 8.7.3(c) and (d);

(c) Appoint an Audit Principal in accordance with the International
Standards on Quality Control; and

(d) ensure that each Audit Principal is fit and proper to conduct audit work
on behalf of the Auditor.

8.9.2 An Audit Principal must:

(a) manage the conduct of audit work undertaken by the Auditor;

(b) sign audit reports on behalf of the Auditor; and

(c) sign any other report as may be required by the DFSA from time to
time.

8.9.3 In assessing whether an Audit Principal is fit and proper, the Auditor must
ensure that the Audit Principal at a minimum:

(a) holds a Recognised Professional Qualification;

(b) has at least five years of prior relevant experience in the past seven
years in auditing financial services; and

(c) is a member in good standing of a Recognised Professional Body.

Guidance

When assessing a person’s suitability to be appointed as an Audit Principal, an Auditor should
ascertain matters such as whether any disciplinary action has been taken against that person by
a Recognised Professional Body.

8.10 Notification of changes

8.10.1 An Auditor must notify the DFSA in writing within 30 days:

(a) of any change of its Audit Principals, including the appointment of any
new Audit Principal;

(b) of any claims made against the Auditor including but not limited to
those lodged against the Auditor’s professional indemnity insurance;

(c) of any matter that can reasonably be regarded as having a material
adverse effect on the DFSA’s registration of the Auditor;

(d) of a change of name or address of the Auditor; and

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(e) if it no longer meets the requirements for registration as an Auditor.

8.11 Books and records

8.11.1
An Auditor must maintain proper books and records at all times to facilitate
the proper performance of its functions and discharge of its duties under
these Rules.

8.11.2 An Auditor must maintain records demonstrating how it established the fitness
and propriety of each Audit Principal for the purposes of Rule 8.9.

8.11.3 An Auditor must:

(a) maintain records and all relevant information relating to its
professional indemnity insurance including the terms of cover and its
duration; and

(b) upon a request by the DFSA, provide to the DFSA forthwith evidence
of the terms of cover and the validity of those policies.

8.11.4 An Auditor must maintain records of insurance claims made under its
professional indemnity insurance policy. Such records, together with each
annual renewal proposal form, must be available for inspection by the DFSA.

8.11.5 An Auditor must maintain records of proof of continuing professional
development undertaken by its Employees, including Audit Principals.

8.11.6 An Auditor must maintain books and records referred to in the above Rules
for a period of at least 6 years. In the case of the books and records referred
to in Rule 8.11.1, those records must be kept for at least a period of 6 years
after the completion of each audit carried out in respect of each client that is
an Authorised Firm, Authorised Market Institution or Domestic Fund.

8.12 Withdrawal of registration

Guidance

Under Article 98(3) of the Regulatory Law 2004, the DFSA may make Rules setting out how
and on what grounds registration may be withdrawn.

8.12.1 (1) The DFSA may withdraw an Auditor’s registration either on its own
initiative or at the request of the Auditor.

(2) A request for withdrawal by an Auditor must be in writing.

8.12.2 In considering requests for the withdrawal of an Auditor’s registration, the
DFSA must be satisfied that:

(a) the Auditor has made appropriate arrangements with respect to its
existing customers; and

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(b) any other matter which the DFSA would reasonably expect to be
resolved has been resolved;

before granting a request for a withdrawal.

8.12.3 An application by an Auditor to withdraw its registration does not in itself
result in a cancellation of its registration. Until such time as the DFSA
withdraws the registration, the Auditor remains subject to, and must comply
with, the Regulatory Law 2004, Rules and any other relevant legislation
administered by the DFSA.

8.12.4 Once an Auditor applies to withdraw its registration, the Auditor must not
accept appointments as an Auditor nor issue any audit reports without
obtaining the prior written consent of the DFSA.

8.12.5 The DFSA must take the necessary steps to withdraw the registration of an
Auditor as soon as practicable after an Auditor has applied to withdraw its
registration.

8.13 Withdrawal on the DFSA’s initiative

8.13.1 The DFSA may withdraw the registration of an Auditor on its own initiative if it
has reasonable grounds to believe that:

(a) the Auditor is no longer fit and proper; or

(b) the Auditor has breached, or is breaching, the Regulatory Law 2004,
Rules or other legislation administered by the DFSA.

8.13.2 The DFSA may only withdraw the registration of an Auditor on its own
initiative if it has given to the Auditor:

(a) a prior written notice setting out the DFSA’s reasons for proposing to
withdraw its registration; and

(b) a suitable opportunity for the Auditor to make representations in
person and in writing to the DFSA in relation to the proposed
withdrawal.

8.13.3 Upon deciding to withdraw the registration of an Auditor, the DFSA must
without delay inform the Auditor in writing of:

(a) such decision; and

(b) the date on which the decision is to take effect.

Guidance

Generally, the DFSA will only consider exercising the power to withdraw the registration of
an Auditor on its own initiative after a thorough investigation. For example, the DFSA may
receive a notification of termination of that Auditor of a Domestic Fund under CIR Rule
12.2.2. Whether or not the DFSA would exercise its discretion to withdraw registration of the
Auditor would depend on the grounds upon which the cessation of the appointment had
occurred and the DFSA’s investigation.

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8.13.4 An Auditor may appeal to the Regulatory Appeals Committee against a
decision of the DFSA to withdraw its registration, and the Regulatory Appeals
Committee has jurisdiction to hear such an appeal.

8.14 Suspension by the DFSA

Guidance

Under Article 105 of the Regulatory Law, the DFSA may make Rules setting out how and on
what grounds registration may be suspended.

8.14.1 The DFSA may suspend an Auditor’s registration if it has reasonable grounds
to believe that:

(a) the Auditor is no longer fit and proper; or

(b) the Auditor has breached, or is breaching, the Regulatory Law 2004,
Rules or other legislation administered by the DFSA.

8.14.2 Subject to Rule 8.14.3, the DFSA may only suspend the registration of an
Auditor after it has given to the Auditor:

(a) a prior written notice setting out the DFSA’s reasons for proposing to
suspend its registration; and

(b) a suitable opportunity for the Auditor to make representations in
person and in writing to the DFSA in relation to the proposed
suspension.
8.14.3 Where the DFSA forms the view that any delay likely to arise as a result of
having to comply with the requirements in Rule 8.14.2 is likely to be
prejudicial to the interests of the DIFC, it may suspend an Auditor’s
registration immediately. In such circumstances, the Auditor may make
representations during the suspension period.

8.14.4 An Auditor may appeal to the Regulatory Appeals Committee in relation to the
DFSA’s decision to suspend the Auditor’s registration, and the Regulatory
Appeals Committee has jurisdiction to hear such an appeal.

8.14.5 Upon deciding to exercise its powers under Rule 8.14.1, the DFSA must,
without delay, inform the Auditor in writing of:

(a) its decision;

(b) the reasons for the suspension; and

(c) the date on which the decision is to take effect and, if known, the
duration of the suspension.
Guidance

The decision of the DFSA to suspend an Auditor’s registration remains in effect until the
appeal is heard and a decision is rendered, unless the Regulatory Appeals Committee orders a
stay of the suspension decision.

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8.15 Continuing professional development

8.15.1 An Auditor must ensure that all Employees, including Audit Principals,
engaged in audit work undertake continuing professional development in
accordance with the requirements of:

(a) the Recognised Professional Body of which the Employee or Audit
Principal is a member;

(b) any applicable internal standards of the Auditor; and

(c) any direction or order given by the DFSA.

8.16 Deleted

8.17 Professional indemnity insurance

8.17.1 An Auditor must hold adequate professional indemnity insurance covering all
civil liability arising in connection with the conduct of the Auditor’s business by
Employees including its Audit Principals.

8.17.2 An Auditor must, upon request of the DFSA, provide to the DFSA any
information relating to the Auditor’s professional indemnity insurance policy
including the terms and duration of, and any claims made under, such policy.

8.17.3 An Auditor’s professional indemnity insurance may be effected with any
reputable insurance company or other underwriter provided that the DFSA
may require Auditors not to use certain insurance companies or underwriters
or forms of insurance cover.

Run-off cover

8.17.4 An Auditor, who intends to cease operations in the DIFC, must make
appropriate arrangements to cover its liability in connection with past conduct
of the Auditor for a period of at least 2 years.

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8.18 Register of Auditors

8.18.1 The DFSA must maintain a register of Auditors by recording the following
information in respect of current and former Auditors:

(a) full name of the Auditor;

(b) names of the Audit Principals of the Auditor;

(c) address of the Auditor;

(d) contact details of the Auditor;

(e) date of registration of the Auditor;

(f) date of withdrawal
of registration of the Auditor ;

(g) date of any suspensions of registration applicable to an Auditor; and

(h) date of cessation of suspension or registration.

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9 COMPLAINTS HANDLING AND DISPUTE RESOLUTION

9.1 Application

9.1.1 This chapter applies to every Authorised Firm, other than a Representative
Office and a Credit Rating Agency, carrying on a Financial Service in or from
the DIFC as follows:

(a) Section 9.2 applies to an Authorised Firm carrying on a Financial
Service with or for a Retail Client; and

(b) Section 9.3 applies to an Authorised Firm carrying on a Financial
Service with or for a Professional Client.

9.2 Complaints handling procedures for Retail Clients

Written Complaints handling procedures

9.2.1 An Authorised Firm must have adequate policies and procedures in place
for the investigation and resolution of Complaints made against it by Retail
Clients, and the manner of redress (including compensation for acts or
omissions of the Authorised Firm).

9.2.2 The policies and procedures for handling Complaints must be in writing and
provide that Complaints are handled fairly, consistently and promptly.

Guidance

1. In establishing adequate Complaints handling policies and procedures, an
Authorised Firm should have regard to:

a. the nature, scale and complexity of its business; and

b. its size and organisational structure.

2. In handling Complaints, an Authorised Firm should consider its obligations under
the Data Protection Law 2007.

3. An Authorised Firm should consider its obligations under GEN Rule 5.3.19 and
accompanying guidance.

4. The DFSA considers 60 days from the receipt of a Complaint to be an appropriate
period in which an Authorised Firm should be able to resolve most Complaints.

9.2.3 On receipt of a Complaint, an Authorised Firm must:

(a) acknowledge the Complaint promptly in writing;

(b) provide the complainant with:

(i) the contact details of any individual responsible for handling
the Complaint;

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(ii) key particulars of the Authorised Firm’s Complaints handling
procedures; and

(iii) a statement that a copy of the procedures is available free of
charge upon request in accordance with GEN Rule 9.2.11;
and

(c) consider the subject matter of the Complaint.

9.2.4 Where appropriate, an Authorised Firm must update the complainant on the
progress of the handling of the Complaint.

Guidance

1. The DFSA considers 7 days to be an adequate period in which an Authorised Firm
should be able to acknowledge most Complaints.

2. The DFSA expects an update to be provided to the complainant in circumstances
where the resolution of the Complaint is taking longer than 30 days.

Resolution of Complaints

9.2.5 Upon conclusion of an investigation of a Complaint, an Authorised Firm
must promptly:

(a) advise the complainant in writing of the resolution of the Complaint;

(b) provide the complainant with clear terms of redress, if applicable;
and

(c) comply with the terms of redress if accepted by the complainant.

9.2.6 If the complainant is not satisfied with the terms of redress offered by the
Authorised Firm, the Authorised Firm must inform the complainant of other
avenues, if any, for resolution of the Complaint and provide him with the
appropriate contact details upon request.

Guidance

Other avenues for resolution of a Complaint may include an external dispute resolution
scheme, arbitration or the DIFC Court.

Employees handling Complaints

9.2.7 Where appropriate, taking into account the nature, scale and complexity of
an Authorised Firm’s business, an Authorised Firm must ensure that any
individual handling the Complaint is not or was not involved in the conduct
of the Financial Service about which the Complaint has been made, and is
able to handle the Complaint in a fair and impartial manner.

9.2.8 An Authorised Firm must ensure that any individual responsible for handling
the Complaint has sufficient authority to resolve the Complaint or has
access to individuals with the necessary authority.

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Complaints involving other Authorised Firms or Regulated Financial
Institutions

9.2.9 If an Authorised Firm considers that another Authorised Firm or a Regulated
Financial Institution is entirely or partly responsible for the subject matter of
a Complaint, it may refer the Complaint, or the relevant part of it, to the
other Authorised Firm or Regulated Financial Institution in accordance with
Rule 9.2.10.

9.2.10 To refer a Complaint, an Authorised Firm must:

(a) inform the complainant promptly and in writing that it would like to
refer the Complaint, either entirely or in part, to another Authorised
Firm or Regulated Financial Institution, and obtain the written
consent of the complainant to do so;

(b) if the complainant consents to the referral of the Complaint, refer the
Complaint to the other Authorised Firm or Regulated Financial
Institution promptly and in writing;

(c) inform the complainant promptly and in writing that the Complaint
has been referred and include adequate contact details of any
individual at the other Authorised Firm or Regulated Financial
Institution responsible for handling the Complaint; and

(d) continue to deal with any part of the Complaint not referred to the
other Authorised Firm or Regulated Financial Institution, in
accordance with this chapter.

Guidance

The referral of a Complaint may involve the transfer of Personal Data, as defined under the
Data Protection Law 2007, DIFC Law No 1 of 2007. In this respect, an Authorised Firm
should consider its obligations under the Data Protection Law 2007.

Retail Client awareness

9.2.11 An Authorised Firm must ensure that a copy of its Complaints handling
procedures is available free of charge to any Retail Client upon request.

Retention of records

9.2.12 An Authorised Firm must maintain a record of all Complaints made against
it for a minimum period of six years from the date of receipt of a Complaint.

9.2.13 This record must contain the name of the complainant, the substance of the
Complaint, a record of the Authorised Firm’s response, and any other
relevant correspondence or records, and the action taken by the Authorised
Firm to resolve each Complaint.

Systems and controls

9.2.14 In accordance with GEN Rules 5.3.4 and 5.3.5, an Authorised Firm must put
in place adequate systems and controls in order for it to identify and remedy
any recurring or systemic problems identified from Complaints.

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Guidance

An Authorised Firm should consider whether it is required to notify the DFSA, pursuant to
Rule 11.10.7, of any recurring or systemic problems identified from Complaints.

Outsourcing

Guidance

An Authorised Firm may outsource the administration of its Complaints handling
procedures in accordance with GEN Rule 5.3.21.

9.3 Complaints recording procedures for Professional Clients

9.3.1 An Authorised Firm must have adequate policies and procedures in place
for the recording of Complaints made against it by Professional Clients.

9.3.2 An Authorised Firm must maintain a record of any Complaint made against
it for a minimum period of six years from the date of receipt of the
Complaint.

Guidance

Depending on the nature, scale and complexity of its business, it may be appropriate for an
Authorised Firm to have in place a suitable Complaints handling procedure for Professional
Clients in order to ensure that such Complaints are properly handled and remedial action is
taken promptly. Such Complaints handling procedures would be expected to include
provisions about the independence of staff investigating the Complaint and bringing the
matter to the attention of senior management.

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10 TRANSITIONAL RULES

10.1 Application

10.1.1 This chapter applies as follows:

(a) Rule 10.1.2 and sections 10.2, 10.3, 10.4 and 10.5 apply to every
Person to whom a provision of the Previous Regime applied;

(b) Rule 10.6.2 applies to a Person who has been authorised to carry on
a Financial Service in respect of a Designated Investment as defined
in Rule 10.6.1;

(c) Rule 10.6.3 applies to a Reporting Entity which has its Designated
Investments included in an Official List of Securities of an Authorised
Market Institution and to an Authorised Market Institution where its
Official List of Securities includes Designated Investments as defined
in Rule 10.6.1;

(d) Rule 10.7.2 applies to every Authorised Person in respect of the
corporate governance requirement in Rule 5.3.30 and the
remuneration related requirement Rule 5.3.31;

(e) Rule 10.8.1 applies to an Authorised Person who has been authorised
to conduct Islamic Financial Business as an Islamic Financial
Institution or to operate an Islamic Window; and

(f) Section 10.9 applies to a Person who is the subject of a notice issued
by the DFSA under Article 90 or 91 of the Regulatory Law 2004 prior
to the date on which this rule came into force.

10.1.2 For the purposes of
the provisions referred to in Rule 10.1.1(a):

“Commencement Date” means 1 July 2008, the date on which the
Current Regime came into force under rule-making instruments No 56
and No.58.

“Current Regime” means the Rules in force on the Commencement
Date;

“Previous Regime” means the Rules that were in force immediately
prior to the Commencement Date;

“Transitional Rules” mean the Rules in this chapter; and

any specific reference to a module is a reference to that module under
the Current Regime, unless otherwise specified.

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10.2 General

10.2.1 An Authorised Person must continue to maintain any records required to be
maintained under the Previous Regime as if any such requirements
continued to apply.

10.3 Specific relief – COB Module

10.3.1 An Authorised Firm, when carrying on Investment Business, Accepting
Deposits, Providing Credit or Providing Trust Services under chapters 3 to 6
of COB:

(a) may treat a Person as a Professional Client without having to
undertake the determination referred to in COB Rule 2.3.1(1) where
the Authorised Firm:

(i) had determined that Person to be a Client under the Previous
Regime, including where such determination had been made
under a waiver or modification in force under the Previous
Regime; and

(ii) carries on the same Financial Service it had carried on with or
for that Person under the Previous Regime;

(b) may treat a Person as a Market Counterparty without having to
comply with the requirements in COB Rule 2.3.4(1) if that Person
was so treated by the firm under the Previous Regime;

(c) may, for a period of not more than 6 months after that
Commencement Date, distribute marketing material that was
produced in accordance with the requirements under the Previous
Regime to a Person:

(i) to whom it could have distributed such material under the
Previous Regime; or

(ii) who is a Professional Client pursuant to this Rule or pursuant
to COB chapter 2; and

(d) may carry on a Financial Service with or for a Person without having
to comply with COB Rule 3.3.2(1) where the Authorised Firm carries
on the same Financial Service it carried on with or for that Person
under the Previous Regime and there is a client agreement in force in
respect of that service.

10.3.2 (1) An Authorised Firm, when carrying on Insurance Business, Insurance
Intermediation or Insurance Management as provided under chapter 7,
may treat a Person it had treated as a Commercial Customer under the
Previous Regime as a Professional Client without having to undertake
the determination referred to in COB Rule 2.3.1(1) to the extent that it
carries on the same Financial Service as it had carried on with or for
that Person under the Previous Regime.

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(2) For the purposes of (1), a “Commercial Customer” means in relation to
an Insurer, Insurance Manager or Insurance Intermediary, a customer
who was an Undertaking or natural person carrying on a trade or
business, with or without a view for profit.

10.4 Not currently in use

10.5 Specific relief – IFR Module

10.5.1 An Authorised Firm may distribute marketing material without having to
comply with the requirements in IFR Rule 2.1.2 provided the marketing
material complies with the Previous Regime and is distributed no later than
6 months after the Commencement Date.

10.6 Specific relief – Designated Investments

10.6.1 In this section, the term Designated Investment has the meaning that it had
under this module immediately prior to 4 January 2009.

10.6.2 An Authorised Person that is authorised under its Licence to carry on a
Financial Service in respect of a Designated Investment may carry on that
Financial Service as if that Designated Investment were a Structured
Product.

10.6.3 For the purposes of the requirements in MKT and AMI modules, a
Designated Investment which is included in an Official List of Securities of
an Authorised Market Institution immediately prior to 4 January 2009 is
deemed to be a Structured Product.

Guidance

Under Rule 10.6.3, a Reporting Entity which had its Designated Investments included in an
Official List of Securities of an Authorised Market Institution prior to 4 January 2009 will
be treated as the Reporting Entity of Structured Products. Therefore, OSR and AMI Rules
that apply to a Reporting Entity in relation to a Structured Product will apply to that
Reporting Entity.

10.7 Specific relief – Corporate governance and remuneration
related enhancements

10.7.1 This section applies to every Person who is an Authorised Person on the
date on which the rule-making instrument No 95 came into force.

10.7.2
A Person referred to Rule 10.7.1 has a transitional period of three months
from the date on which the rule-making instrument No 95 came into force
within which to comply with the corporate governance and the
remuneration requirements introduced under rule-making instrument 95.

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10.8 Specific relief – IFR Module – Accounting Standards

10.8.1 An Authorised Persons who is authorised to conduct Islamic Financial
Business as an Islamic Financial Institution or to operate an Islamic Window
and who applies the accounting and auditing standards of the Accounting
and Auditing Organisation for Islamic Financial Institutions immediately prior
to the date on which the rule-making instrument No 105 came into force
may continue to apply such standards for a period of not more than 2 years
from such date.

10.9 Specific relief – ENF Module

10.9.1 (1) Any matter commenced by the DFSA by way of notice under Article
90 or 91 of the Regulatory Law 2004 to impose an administrative fine
or censure under the previous regime where the matter remains to
be concluded on the date this rule came into force may be continued
under the relevant requirements prescribed under the previous
regime.

(2) For the purposes of (1), the “previous regime” means the regime
specified under Articles 90 and 91 of the Regulatory Law 2004 in
force immediately prior to the coming into force of the DIFC Laws
Amendment Law 2012 and the ENF module of the DFSA’s Rulebook
prior to the coming into force of this Rule.

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11 SUPERVISION

Introduction

Guidance

1. This chapter outlines DFSA’s supervisory requirements for an Authorised Person.

2. This chapter should be read in conjunction with the RPP Sourcebook which sets
out DFSA’s general regulatory policy and processes.

11.1 Information gathering and DFSA access to information

11.1.1 This section applies to an Authorised Person other than a Representative
Office with respect to the carrying on of all of its activities.

11.1.2 An Authorised Person must where reasonable:

(a) give or procure the giving of specified information, documents, files,
tapes, computer data or other material in the Authorised Person’s
possession or control to the DFSA;

(b) make its Employees readily available for meetings with the DFSA;

(c) give the DFSA access to any information, documents, records, files,
tapes, computer data or systems, which are within the Authorised
Person’s possession or control and provide any facilities to the
DFSA;

(d) permit the DFSA to copy documents or other material on the
premises of the Authorised Person at the Authorised Person’s
expense;

(e) provide any copies as requested by the DFSA; and

(f) answer truthfully, fully and promptly, all questions which are put to it
by the DFSA.

11.1.3 An Authorised Person must take reasonable steps to ensure that its
Employees act in the manner set out in this chapter.

11.1.4 An Authorised Person must take reasonable steps to ascertain if there is
any secrecy or data protection legislation that would restrict access by the
Authorised Person or the DFSA to any data required to be recorded under
the DFSA’s Rules. Where such legislation exists, the Authorised Person
must keep copies of relevant documents or material in a jurisdiction which
does allow access in accordance with legislation applicable in the DIFC.

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Lead regulation

11.1.5 (1) If requested by the DFSA, an Authorised Person must provide the
DFSA with information that the Authorised Person or its auditor has
provided to a Financial Services Regulator.

(2) If requested by the DFSA, an Authorised Person must take
reasonable steps to provide the DFSA with information that other
members of the Authorised Person’s Group have provided to a
Financial Services Regulator.

11.2 Waivers

11.2.1 This section applies to every Authorised Person.

11.2.2 Throughout the Rulebook reference to the written notice under Article 25 will
be referred to as a ‘waiver’.

11.2.3 If an Authorised Person wishes to apply for a waiver, it must apply in writing
and the application must be delivered to the DFSA as outlined in section
11.11.

Guidance

Waiver application forms are contained in AFN and the RPP Sourcebook sets out the DFSA’s
approach to considering a waiver.

11.2.4 The application must contain:

(a) the name and Licence number of the Authorised Person;

(b) the Rule to which the application relates;

(c) a clear explanation of the waiver that is being applied for and the
reason why the Authorised Person is requesting the waiver;

(d) details of any other requirements; for example, if there is a specific
period for which the waiver is required;

(e) the reason, if any, why the waiver should not be published or why it
should be published without disclosing the identity of the Authorised
Person; and

(f) all relevant facts to support the application.

11.2.5 An Authorised Person must immediately notify the DFSA if it becomes aware
of any material change in circumstances which may affect the application for
a waiver.

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Continuing relevance of waivers

11.2.6 An Authorised Person must immediately notify the DFSA if it becomes aware
of any material change in circumstances which could affect the continuing
relevance of a waiver.

11.3 Application to change the scope of a Licence

11.3.1 This section applies to an Authorised Firm applying to change the scope of its
Licence or, where a condition or restriction has previously been imposed, to
have the condition or restriction varied or withdrawn.

11.3.2 The provisions relating to permitted legal forms, fitness and propriety,
adequate resources, compliance arrangements, enquiries and the provision
of additional information set out in section 7.2 also apply to an Authorised
Firm making an application under this chapter, and are to be construed
accordingly.

11.3.3 An Authorised Firm applying to change the scope of its Licence, or to have a
condition or restriction varied or withdrawn, must provide the DFSA, with
written details of the proposed changes.

11.4 Withdrawal of a Licence at an Authorised Firm’s request

11.4.1 An Authorised Firm seeking to have its Licence withdrawn must submit a
request in writing stating:

(a) the reasons for the request;

(b) that it has ceased or will cease to carry on Financial Services in or
from the DIFC;

(c) the date on which it ceased or will cease to carry on Financial
Services in or from the DIFC;

(d) that it has discharged, or will discharge, all obligations owed to its
customers in respect of whom the Authorised Firm has carried on, or
will cease to carry on, Financial Services in or from the DIFC; and

(e) if it is providing Trust Services, that it has made appropriate
arrangements for the transfer of business to a new Trust Service
Provider and the appointment, where necessary, of new trustees.

Guidance

When considering a withdrawal of a Licence, the DFSA takes into account a number of
matters including those outlined in the RPP Sourcebook.

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11.5 Changes to an authorised individual status

Guidance

This section addresses applications or requests regarding Authorised Individuals with respect
to Article 53(3), 57(2), 58(3) and 58(4).

11.5.1 An application to extend the scope of an Authorised Individual status to other
Licensed Functions may be made by the Authorised Individual and
Authorised Firm by the completion and submission of the appropriate form in
AFN.

11.5.2 An Authorised Firm or Authorised Individual requesting:

(a) the imposition, variation or withdrawal of a condition or restriction;

(b) withdrawal of Authorised Individual status; or

(c) withdrawal of authorisation in relation to one or more Licensed
Functions;

must, subject to Rule 11.5.3, for (a) submit such request in writing to the
DFSA, and for (b) and (c) submit a request by completing the appropriate
form in AFN.

11.5.3 A request for the variation or withdrawal of a condition or restriction may only
be made after the expiry of any period within which an appeal to the
Regulatory Appeals Committee relating to the relevant condition or restriction
may commence under Article 28.

Guidance

1. Notification of the determination of an application under Rule 11.5.1 or request under
Rule 11.5.2 will be made in accordance with Articles 55 and 57.

2. In considering the suitability of such an application or request the DFSA may take
into account any matter referred to in RPP with respect to fitness and propriety for
Authorised Individuals.

11.6 Temporary cover

11.6.1 (1) An Authorised Firm may, subject to (2), appoint an individual, who is
not an Authorised Individual, to carry out the functions of an
Authorised Individual where the following conditions are met:

(a) the absence of the Authorised Individual is temporary or
reasonably unforeseen;

(b) the functions are carried out for 12 weeks maximum in any
consecutive 12 months; and

(c) the Authorised Firm has assessed that the individual has the
relevant skills and experience to carry out these functions.

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(2) An Authorised Firm may not appoint under (1) an individual to carry
out the Licensed Functions of a Licensed Director or Licensed
Partner.

(3) The Authorised Firm must take reasonable steps to ensure that the
individual complies with all the Rules applicable to Authorised
Individuals.

(4) Where an individual is appointed under this Rule, the Authorised Firm
must notify the DFSA in writing of the name and contact details of the
individual appointed.

11.6.2 Where an individual is appointed under this section, the DFSA may exercise
any powers it would otherwise be entitled to exercise as if the individual held
Authorised Individual status.

11.7 Dismissal or resignation of an Authorised Individual

11.7.1 An Authorised Firm must request the withdrawal of an Authorised Individual
status within seven days of the Authorised Individual ceasing to be employed
by the Authorised Firm to perform a Licensed Function.

11.7.2 In requesting the withdrawal of an Authorised Individual status, the Authorised
Firm must submit the appropriate form in AFN, including details of any
circumstances where the Authorised Firm may consider that the individual is
no longer fit and proper.

11.7.3 If an Authorised Individual is dismissed or requested to resign, a statement of
the reason, or reasons, for the dismissal or resignation must be given to the
DFSA by the Authorised Firm.

11.7.4 If the Authorised Individual was acting as a trustee, the Trust Service Provider
must confirm to the DFSA in writing that a new trustee has been appointed in
place of the trustee in question.

11.8 Changes relating to control

11.8.1 (1) This section applies, subject to (2) and (3), to:

(a) an Authorised Firm; or

(b) a Person who is, or is proposing to become, a Controller
specified in Rule 11.8.3.

(2) This chapter does not apply to a Representative Office or a Person
who is a Controller of such a firm.

(3) A Credit Rating Agency must comply with the requirements in this
section as if it were a non-DIFC established company.

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Guidance

The requirements in respect of notification of changes relating to control of Branches (i.e.
Non-DIFC established companies) are set out in Rule 11.8.10. Although some Credit Rating
Agencies may be companies established in the DIFC, such companies will only be subject to
the notification requirements relating to their Controllers. Accordingly, regardless of whether
a Credit Rating Agency is a company established in the DIFC or a Branch operation, it is
subject to the notification requirements only and not to the requirement for prior approval by
the DFSA of changes relating to its Controllers.

Definition of a Controller

11.8.2 (1) A Controller is a Person who, either alone or with any Associate:

(a) holds 10% or more of the shares in either the Authorised Firm
or a Holding Company of that firm;

(b) is entitled to exercise, or controls the exercise of, 10% or more
of the voting rights in either the Authorised Firm or a Holding
Company of that firm; or

(c) is able to exercise significant influence over the management
of the Authorised Firm as a result of holding shares or being
able to exercise voting rights in the Authorised Firm or a
Holding Company of that firm or having a current exercisable
right to acquire such shares or voting rights.

(2) A reference in this chapter to the term:

(a) “share” means:

(i) in the case of an Authorised Firm, or a Holding
Company of an Authorised Firm, which has a share
capital, its allotted shares;

(ii) in the case of an Authorised Firm, or a Holding
Company of an Authorised Firm, with capital but no
share capital, rights to a share in its capital; and

(iii) in the case of an Authorised Firm, or a Holding
Company of an Authorised Firm, without capital, any
interest conferring a right to share in its profits or
losses or any obligation to contribute to a share of its
debt or expenses in the event of its winding up; and

(b) “a holding” means, in respect of a Person, shares, voting rights
or a right to acquire shares or voting rights in an Authorised
Firm or a Holding Company of that firm held by that Person
either alone or with any Associate.

Guidance

1. For the purposes of these Rules, the relevant definition of a Holding Company is
found in the DIFC Companies Law. That definition describes when one body
corporate is considered to be a holding company or a subsidiary of another body

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corporate and extends that concept to the ultimate holding company of the body
corporate.

2. Pursuant to Rule 11.8.2(1)(c), a Person becomes a Controller if that Person can exert
significant management influence over an Authorised Firm. The ability to exert
significant management influence can arise even where a Person, alone or with his
Associates, controls less than 10% of the shares or voting rights of the Authorised
Firm or a Holding Company of that firm. Similarly, a Person may be able to exert
significant management influence where such Person does not hold shares or voting
rights but has current exercisable rights to acquire shares or voting rights, such as
under Options.

Disregarded holdings

11.8.3 For the purposes of determining whether a Person is a Controller, any
shares, voting rights or rights to acquire shares or voting rights that a Person
holds, either alone or with any Associate, in an Authorised Firm or a Holding
Company of that firm are disregarded if:

(a) they are shares held for the sole purpose of clearing and settling
within a short settlement cycle;

(b) they are shares held in a custodial or nominee capacity and the voting
rights attached to the shares are exercised only in accordance with
written instructions given to that Person by another Person; or

(c) the Person is an Authorised Firm or a Regulated Financial Institution
and it:

(i) acquires the shares as a result of an underwriting of a share
issue or a placement of shares on a firm commitment basis;

(ii) does not exercise the voting rights attaching to the shares or
otherwise intervene in the management of the issuer; and

(iii) retains the shares for a period less than one year.

Requirement for prior approval of Controllers of Domestic Firms

11.8.4 (1) In the case of an Authorised Firm which is a Domestic Firm, a Person
must not:

(a) become a Controller; or

(b) increase the level of control which that Person has in the firm
beyond a threshold specified in (2),

unless that Person has obtained the prior written approval of the
DFSA to do so.

(2) For the purposes of (1)(b), the thresholds at which the prior written
approval of the DFSA is required are when the relevant holding is
increased:

(a) from below 30% to 30% or more; or

(b) from below 50% to 50% or more.

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Guidance

See Rules 11.8.2 and 11.8.3 for the circumstances in which a Person becomes a Controller of
an Authorised Person.

Approval process

11.8.5 (1) A Person who is required to obtain the prior written approval of the
DFSA pursuant to Rule 11.8.4(1) must make an application to the
DFSA using the appropriate form in AFN.

(2) Where the DFSA receives an application under (1), it may:

(a) approve the proposed acquisition or increase in the level of
control;

(b) approve the proposed acquisition or increase in the level of
control subject to such conditions as it considers appropriate;
or

(c) object to the proposed acquisition or increase in the level of
control.

Guidance

1. A Person intending to acquire or increase control in an Authorised Firm should
submit an application for approval in the appropriate form in AFN sufficiently in
advance of the proposed acquisition to be able to obtain the DFSA approval in time
for the proposed acquisition. Sections 3-2-34 – 3-2-37 of the RPP Sourcebook set out
the matters which the DFSA will take into consideration when exercising its powers
under Rule 11.8.5 to approve, object to or impose conditions of approval relating to a
proposed Controller or a proposed increase in the level of control of an existing
Controller.

2. The DFSA will exercise its powers relating to Controllers in a manner proportionate
to the nature, scale and complexity of an Authorised Firm’s business, and the impact
a proposed change in control would have on that firm and its Clients. For example,
the DFSA would generally be less likely to impose conditions requiring a proposed
acquirer of control of an Authorised Firm whose financial failure would have a
limited systemic impact or impact on its Clients to provide prudential support to the
firm by contributing more capital. Most advisory and arranging firms will fall into
this class.

11.8.6 (1) Where the DFSA proposes to approve a proposed acquisition or an
increase in the level of control in an Authorised Firm pursuant to Rule
11.8.5(2)(a), it must:

(a) do so as soon as practicable and in any event within 90 days
of the receipt of a duly completed application, unless a
different period is considered appropriate by the DFSA and
notified to the applicant in writing; and

(b) issue to the applicant, and where appropriate to the Authorised
Firm, an approval notice as soon as practicable after making
that decision.

(2) An approval, including a conditional approval granted by the DFSA
pursuant to Rule 11.8.5(2)(a) or (b), is valid for a period of one year

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from the date of the approval, unless an extension is granted by the
DFSA in writing.

Guidance

1. If the application for approval lodged with the DFSA does not contain all the required
information, then the 90 day period runs from the date on which all the relevant
information has been provided to the DFSA.

2. If a Person who has obtained the prior DFSA approval for an acquisition or an
increase in the control of an Authorised Firm is unable to effect the acquisition before
the end of the period referred to in Rule 11.8.6(2), it will need to obtain fresh
approval from the DFSA.

Objection or conditional approval process

11.8.7 (1) Where the DFSA proposes to exercise its objection or conditional
approval power pursuant to Rule 11.8.5(2)(b) or (c) in respect of a
proposed acquisition of, or an increase in the level of control in, an
Authorised Firm, it must, as soon as practicable and in any event
within 90 days of the receipt of the duly completed application form,
provide to the applicant:

(a) a written notice stating:

(i) the DFSA’s reasons for objecting to that Person as a
Controller or to the Person’s proposed increase in
control; and

(ii) any proposed conditions subject to which that Person
may be approved by the DFSA; and

(b) an opportunity to make representations within 14 days of the
receipt of such notice or such other longer period as agreed to
by the DFSA.

(2) The DFSA must, as soon as practicable after receiving
representations or, if no representations are received, after the expiry
of the period for making representations referred to in (1)(b), issue a
final notice stating that:

(a) the proposed objections and any conditions are withdrawn and
the Person is an approved Controller;

(b) the Person is approved as a Controller subject to conditions
specified in the notice; or

(c) the Person is not approved and therefore is an unacceptable
Controller with respect to that Person becoming a Controller of,
or increasing the level of control in, the Authorised Firm.

Guidance

A final decision made by the DFSA pursuant to Rule 11.8.7(2)(b) or (c) is appealable to the
Regulatory Appeals Committee (see Article 27(2)(i) of the Regulatory Law 2004).

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11.8.8 (1) A Person who has been approved by the DFSA as a Controller of an
Authorised Firm subject to any conditions must comply with the
relevant conditions of approval.

(2) A Person who has been notified by the DFSA pursuant to Rule
11.8.7(2)(c) as an unacceptable Controller must not proceed with the
proposed acquisition of control of the Authorised Firm.

Guidance

A Person who acquires control of or increases the level of control in an Authorised Firm
without the prior DFSA approval or breaches a condition of approval is in breach of the Rules.
See Rule 11.8.13 for the actions that the DFSA may take in such circumstances.

Notification for decrease in the level of control of Domestic Firms

11.8.9 A Controller of an Authorised Firm which is a Domestic Firm must submit,
using the appropriate form in AFN, a written notification to the DFSA where
that Person:

(a) proposes to cease being a Controller; or

(b) proposes to decrease that Person’s holding from more than 50% to
50% or less.

Requirement for notification of changes relating to control of Branches

11.8.10 (1) In the case of an Authorised Firm which is a Branch, a written
notification to the DFSA must be submitted by a Controller or a Person
proposing to become a Controller of that Authorised Firm in
accordance with (3) in respect of any one of the events specified in
(2).

(2) For the purposes of (1), a notification to the DFSA is required when:

(a) a Person becomes a Controller;

(b) an existing Controller proposes to cease being a Controller; or

(c) an existing Controller’s holding is:

(i) increased from below 30% to 30% or more;

(ii) increased from below 50% to 50% or more; or

(iii) decreased from more than 50% to 50% or less.

(3) The notification required under (1) must be made by a Controller or
Person proposing to become a Controller of a Branch using the
appropriate form in AFN as soon as possible, and in any event, before
making the relevant acquisition or disposal.

Obligations of Authorised Firms relating to its Controllers

11.8.11 (1) An Authorised Firm must have adequate systems and controls to
monitor:

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(a) any change or proposed change of its Controllers; and

(b) any significant changes in the conduct or circumstances of
existing Controllers which might reasonably be considered to
impact on the fitness and propriety of the Authorised Firm or its
ability to conduct business soundly and prudently.

(2) An Authorised Firm must, subject to (3), notify the DFSA in writing of
any event specified in (1) as soon as possible after becoming aware of
that event.

(3) An Authorised Firm need not comply with the requirement in (2) if it is
satisfied on reasonable grounds that a proposed or existing Controller
has either already obtained the prior approval of the DFSA or notified
the event to the DFSA as applicable.

Guidance

Steps which an Authorised Firm may take in order to monitor changes relating to Controllers
include the monitoring of any relevant regulatory disclosures, press reports, public
announcements, share registers and entitlements to vote, or the control of voting rights, at
general meetings.

11.8.12 (1) An Authorised Firm must submit to the DFSA an annual report on its
Controllers within four months of its financial year end.

(2) The Authorised Firm’s annual report on its Controllers must include:

(a) the name of each Controller; and

(b) the current holding of each Controller, expressed as a
percentage.

Guidance

1. An Authorised Firm may satisfy the requirements of Rule 11.8.12 by submitting a
corporate structure diagram containing the relevant information.

2. An Authorised Firm must take account of the holdings which the Controller, either
alone or with any Associate, has in the Authorised Firm or any Holding Company of
the firm (see the definition of a Controller in Rule 11.8.2).

Other Powers relating to Controllers

11.8.13 (1) Without limiting the generality of its other powers, the DFSA may,
subject only to (2), object to a Person as a Controller of an Authorised
Firm where such a Person:

(a) has acquired or increased the level of control that Person has
in an Authorised Firm without the prior written approval of the
DFSA as required under Rule 11.8.4;

(b) has breached the requirement in Rule 11.8.8 to comply with
the conditions of approval applicable to that Person; or

(c) is no longer acceptable to the DFSA as a Controller.

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(2) Where the DFSA proposes to object to a Person as a Controller of an
Authorised Firm under (1), the DFSA must provide such a Person
with:

(a) a written notice stating:

(i) the DFSA’s reasons for objecting to that Person as a
Controller; and

(ii) any proposed conditions subject to which that Person
may be approved by the DFSA; and

(b) an opportunity to make representations within 14 days of the
receipt of such objections notice or such other longer period as
agreed to by the DFSA.

(3) The DFSA must, as soon as practicable after receiving
representations, or if no representations are made, after the expiry of
the period for making representations referred to in (2)(b), issue a final
notice stating that:

(a) the proposed objections and any conditions are withdrawn and
the Person is an approved Controller;

(b) the Person is approved as a Controller subject to conditions
specified in the notice; or

(c) the Person is an unacceptable Controller and accordingly,
must dispose of that Person’s holdings.

(4) Where the DFSA has issued a final notice imposing any conditions
subject to which a Person is approved as a Controller, that Person
must comply with those conditions.

(5) Where the DFSA has issued a final notice declaring a Person to be an
unacceptable Controller, that Person must dispose of the relevant
holdings within such period as specified in the final notice.

(6) The DFSA must also notify the Authorised Firm of any decision it has
made pursuant to (3).

Guidance

1. Sections 3.2.34 and 3.2.37 of the RPP Sourcebook set out the matters which the
DFSA takes into consideration when exercising its powers under Rule 11.8.13.

2. A final decision made by the DFSA pursuant to Rule 11.8.13(3)(b) or (c) is
appealable to the Regulatory Appeals Committee (see Article 27(2)(i) of the
Regulatory Law 2004).

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11.9 Creation of additional cells of a protected cell company for
an Insurer

11.9.1 This section applies to Insurers that are Protected Cell Companies.

Guidance

1. An Insurer that is a Protected Cell Company is a company incorporated as, or
converted into, a Protected Cell Company in accordance with the provisions of the
DIFC Company Regulations
.

2. Under the provisions of the DIFC Company Regulations dealings or transactions
between Cells in relation to an Insurer may take place only with the approval of the
Court.

3. An Authorised Firm which intends to apply to the Court for approval under the
provisions is invited to consult with the DFSA before making the necessary
application to the Court.

11.9.2 An Insurer that is a Protected Cell Company may not create a new Cell
unless approval has been granted by the DFSA.

11.9.3 An application to the DFSA for the approval for the creation of a new Cell
must be made on the appropriate form in AFN, and shall be accompanied by
such documents and information and verified in such manner, as the DFSA
may require.

11.9.4 The DFSA may:

(a) grant approval;

(b) grant approval with conditions or restrictions; or

(c) refuse approval;

for the creation of a new Cell.

Notice of the DFSA’s decision

11.9.5 (1) Where the DFSA grants approval of a new Cell, the DFSA will without
undue delay give the Insurer a written notice of its decision.

(2) Where the DFSA grants approval of a new Cell with conditions or
restrictions, the DFSA will without undue delay give the Insurer a
written notice of its decision and, where requested by the Insurer, the
reasons for the conditions.

(3) Where the DFSA refuses approval of a new Cell, the DFSA will
without undue delay give a written notice of its decision to the Insurer
and, where requested by the Insurer, the reasons for such refusal.

Rights of representation and appeal

11.9.6 The DFSA may only exercise its power to refuse an application for a new
Cell, or to grant approval with conditions or restrictions, if it has given the

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Insurer a suitable opportunity to make representations in person and in writing
in relation to the proposed refusal or the proposed conditions or restrictions.

11.9.7 The Insurer has the right to appeal a decision to refuse approval, or to grant
approval with conditions or restrictions, to the Regulatory Appeals Committee
which has the jurisdiction to hear and determine such an appeal.

11.10 Notifications

11.10.1 (1) This section applies to every Authorised Person, unless otherwise
provided, with respect to the carrying on of Financial Services and any
other activities whether or not financial.

(2) This section does not apply to a Representative Office.

Guidance

1. This chapter sets out Rules on specific events, changes or circumstances that require
notification to the DFSA and outlines the process and requirements for notifications.

2. The list of notifications outlined in this chapter is not exhaustive. Other areas of the
Rulebook may also detail additional notification requirements.

3. An Authorised Person and its auditor are also required under Article 67 to disclose to
the DFSA any matter which may indicate a breach or likely breach of, or a failure or
likely failure to comply with, laws or Rules. An Authorised Person is also required
to establish and implement systems and procedures to enable its compliance and
compliance by its auditor with notification requirements.

Core information

11.10.2 An Authorised Person must provide the DFSA with reasonable advance
notice of a change in:

(a) the Authorised Person’s name;

(b) any business or trading name under which the Authorised Person
carries on a Financial Service in or from the DIFC;

(c) the address of the Authorised Person’s principal place of business in
the DIFC;

(d) in the case of a Branch, its registered office or head office address;

(e) its legal structure; or

(f) an Authorised Individual’s name or any material matters relating to his
fitness and propriety.

11.10.3 A Domestic Firm must provide the DFSA with reasonable advance notice of
the establishment or closure of a branch office anywhere in the world from
which it carries on financial services.

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11.10.4 When giving notice under Rule 11.10.3 in relation to the establishment of a
branch, a Domestic Firm must at the same time submit to the DFSA a
detailed business plan in relation to the activities of the proposed branch.

11.10.5 (1) The DFSA may in its absolute discretion, object to the establishment
of a branch office. Upon objecting to the establishment of a branch
office, the DFSA must without undue delay, inform the applicant in
writing of such objection, and where requested by the Domestic Firm,
the reasons for such objection.

(2) If the DFSA objects to the firm establishing a branch anywhere in the
world the firm may not proceed with establishment of such a branch.

11.10.6 A Domestic Firm may appeal to the Regulatory Appeals Committee against
the decision of the DFSA to object to the opening of a branch office, and the
Regulatory Appeals Committee has jurisdiction to hear such an appeal.

Regulatory impact

11.10.7 An Authorised Person must advise the DFSA immediately if it becomes
aware, or has reasonable grounds to believe, that any of the following matters
may have occurred or may be about to occur:

(a) the Authorised Person’s failure to satisfy the fit and proper
requirements;

(b) any matter which could have a significant adverse effect on the
Authorised Person’s reputation;

(c) any matter in relation to the Authorised Person which could result in
serious adverse financial consequences to the financial system or to
other firms;

(d) a significant breach of a Rule by the Authorised Person or any of its
Employees;

(e) a breach by the Authorised Person or any of its Employees of any
requirement imposed by any applicable law by the Authorised Person
or any of its Employees;

(f) subject to Rule 11.10.8, any proposed restructuring, merger,
acquisition, reorganisation or business expansion which could have a
significant impact on the Authorised Person’s risk profile or resources;

(g) any significant failure in the Authorised Person’s systems or controls,
including a failure reported to the Authorised Person by the firm’s
auditor;

(h) any action that would result in a material change in the capital
adequacy or solvency of the Authorised Firm; or

(i) non-compliance with Rules due to an emergency outside the
Authorised Person’s control and the steps being taken by the
Authorised Person.

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Major acquisitions

11.10.8 (1) Subject to (2), an Authorised Firm which makes or proposes to make
a Major Acquisition as defined in (3) must:

(a) if it is a Domestic Firm, comply with the requirements in Rule
11.10.9; and

(b) if it is not a Domestic Firm, comply with the requirements in
Rule 11.10.10.

(2) The requirement in (1) does not apply to an Authorised Firm which is a
Credit Rating Agency or a firm in Category 3 (as defined in PIB Rule
1.3.3) or Category 4 (as defined in PIB Rule 1.3.4).

(3) Subject to (4), an Authorised Firm makes a Major Acquisition if it
makes or proposes to directly or indirectly acquire a shareholding in a
Body Corporate where that acquisition:

(a) is of a value (whether by one acquisition or a series of
acquisitions) of 10% or more of:

(i) the Authorised Firm’s Capital Resources, if it is a
Domestic Firm which is a Category 1 Authorised Firm
(as defined in PIB Rule 1.3.1), Category 2 Authorised
Firm (as defined in PIB Rule 1.3.2) or Category 5
Authorised Firm (as defined in PIB Rule 1.3.5); or

(ii) the Authorised Firm’s Adjusted Capital Resources, if it
is a Domestic Firm conducting Insurance Business; or

(iii) the capital resources of the Authorised Firm
calculated in accordance with the requirements of the
Financial Services Regulator in its home jurisdiction, if
it is not a Domestic Firm; or

(b) even if it does not exceed the 10% threshold referred to in
(a), it is reasonably likely to have a significant regulatory
impact on the Authorised Firm’s activities.

(4) An acquisition is not a Major Acquisition for the purposes of (3) if it is
an investment made by an Authorised Firm:

(a) in accordance with the terms of a contract entered into by the
Authorised Firm as an incidental part of its ordinary business;
or

(b) as a routine transaction for managing the Authorised Firm’s
own investment portfolio and therefore can reasonably be
regarded as made for a purpose other than acquiring
management or control of a Body Corporate either directly or
indirectly.

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Guidance

1. Examples of the kind of investments referred to in Rule 11.10.8(3)(b)
include an acquisition of a stake in a small specialised trading firm that
engages in high risk trades or other activities that could pose a reputational
risk to the Authorised Firm.

2. The onus is on an Authorised Firm proposing to make an acquisition to
consider whether it qualifies as a Major Acquisition under Rule
11.10.8(3)(b). Generally, in the case of an Authorised Firm that is not a
Domestic Firm (i.e. a Branch operation in the DIFC), the significant
regulatory impact referred to in Rule 11.10.8 (3)(b) should be prudential
risk to the Authorised Firm as a whole. If an Authorised Firm is uncertain
about whether or not a proposed acquisition qualifies as a Major
Acquisition under Rule 11.10.8 (3)(b), the Authorised Firm may seek
guidance from the DFSA.

3. Examples of contractual arrangements of the kind referred to in Rule
11.10.8 (4)(a) include enforcement of a security interest in the securities of
the investee Body Corporate or a loan workout pursuant to a loan
agreement entered into between a bank and its client.

4. Examples of the kind of investments referred to in Rule 11.10.8(4)(b)
include temporary investments, such as investments included in the
Authorised Firm’s trading book or which are intended to be disposed of
within a short term (e.g. within 12 months).

11.10.9 (1) An Authorised Firm which is a Domestic Firm must:

(a) before making a Major Acquisition:

(i) notify the DFSA in writing of the proposed Major
Acquisition at least 45 days prior to the proposed date
for effecting the Major Acquisition; and

(ii) give to the DFSA all the relevant information relating to
that Major Acquisition to enable the DFSA to assess
the impact of the proposed Major Acquisition on the
Authorised Firm; and

(b) not effect the proposed Major Acquisition unless:

(i) the Authorised Firm has either received written advice
from the DFSA that it has no objection to that Major
Acquisition or has not received any written objection or
request for additional information from the DFSA within
45 days after the date of the notification; and

(ii) if the DFSA has imposed any conditions relating to the
proposed Major Acquisition, it has complied with, and
has the on-going ability to comply with, the relevant
conditions.

(2) The DFSA may only object to a proposed Major Acquisition if it is of
the view that the proposed Major Acquisition is reasonably likely to
have a material adverse impact on the Authorised Firm’s ability to
comply with its applicable regulatory requirements or on the financial
services industry in the DIFC as a whole. The DFSA may also impose

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any conditions it considers appropriate to address any concerns it may
have in relation to the proposed Major Acquisition.

(3) Without limiting the generality of its powers, the factors that the DFSA
may take into account for the purposes of (2) include:

(a) the financial and other resources available to the Authorised
Firm to carry out the proposed Major Acquisition;

(b) the possible impact of the proposed Major Acquisition upon the
Authorised Firm’s resources, including its capital, both at the
time of the acquisition and on an on-going basis;

(c) the managerial capacity of the Authorised Firm to ensure that
the activities of the investee Body Corporate are conducted in
a prudent and reputable manner;

(d) the place of incorporation or domicile of the investee Body
Corporate and whether or not the laws applicable to that entity
are consistent with the laws applicable to the Authorised Firm.
In particular, whether there are any secrecy constraints that
are likely to create difficulties in relation to the DFSA
requirements including those relating to consolidated
supervision by the DFSA where applicable; and

(e) any other undue risks to the Authorised Firm or the financial
services industry in the DIFC as a whole arising from the
proposed Major Acquisition.

Guidance

Factors which the DFSA may take into account in assessing whether there are any
undue risks arising from the proposed Major Acquisition include the size and nature of
the business of the investee Body Corporate, its reputation and standing, its present and
proposed management structure and the quality of management, the reporting lines and
other monitoring and control mechanisms available to the Authorised Firm and the past
records of the Authorised Firm relating to acquisitions of a similar nature.

11.10.10 (1) An Authorised Firm which is not a Domestic Firm must:

(a) notify the DFSA in writing of any Major Acquisition in
accordance with the notification requirement applying to the
Authorised Firm under the requirements of the Financial
Services Regulator in its home jurisdiction (the home
regulator); and

(b) if there is no notification requirement applying to the
Authorised Firm under (a), comply with the requirements in
Rule 11.10.9 as if it were a Domestic Firm. The DFSA must
follow the same procedures, and shall have the same powers,
as set out in Rule 11.10.9 in relation to such a notification.

(2) An Authorised Firm which gives to the DFSA a notification under (1)(a)
must:

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(a) notify the DFSA of the Major Acquisition at the same time as it
notifies the home regulator;

(b) provide to the DFSA the same information as it is required to
provide to the home regulator; and

(c) provide to the DFSA copies of any communications it receives
from the home regulator relating to the notification it has
provided to the home regulator as soon as practicable upon
receipt.

11.10.11 (1) The DFSA may, for the purposes of the requirements in this section,
require from an Authorised Firm any additional information relating to
the Major Acquisition as it may consider appropriate. An Authorised
Firm must provide any such additional information to the DFSA
promptly.

(2) The DFSA may, where it considers appropriate, withdraw its no
objection position or modify or vary any condition it has imposed or
any remedial action it has required under the Rules in this section.
Where it forms the view that such an action is required, the DFSA will
first give to the Authorised Firm affected by that decision prior written
notice of its proposed actions and its reasons.

Guidance

The DFSA will generally not withdraw a no objection position it has conveyed to an
Authorised Firm, except in very limited circumstances. An example of such a situation is
where the Authorised Firm is found to have provided to the DFSA inaccurate or incomplete
information and that commission or omission has a material impact on the DFSA’s no
objection decision.

11.10.12 An Authorised Firm may make an appeal to the Regulatory Appeals
Committee for the review of a decision of the DFSA under Rules 11.10.9,
11.10.10(b) or 11.10.11(2) and the Regulatory Appeals Committee has the
jurisdiction to hear any such appeal.

Fraud and errors

11.10.13 An Authorised Person must notify the DFSA immediately if one of the
following events arises in relation to its activities in or from the DIFC:

(a) it becomes aware that an Employee may have committed a fraud
against one of its customers;

(b) a serious fraud has been committed against it;

(c) it has reason to believe that a Person is acting with intent to commit a
serious fraud against it;

(d) it identifies significant irregularities in its accounting or other records,
whether or not there is evidence of fraud; or

(e) it suspects that one of its Employees who is connected with the
Authorised Person’s Financial Services may be guilty of serious
misconduct concerning his honesty or integrity.

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Other regulators

11.10.14 An Authorised Person must advise the DFSA immediately of:

(a) the granting or refusal of any application for or revocation of
authorisation to carry on financial services in any jurisdiction outside
the DIFC;

(b) the granting, withdrawal or refusal of an application for, or revocation
of, membership of the Authorised Person of any regulated exchange
or clearing house;

(c) the Authorised Person becoming aware that a Financial Services
Regulator has started an investigation into the affairs of the Authorised
Person;

(d) the appointment of inspectors, howsoever named, by a Financial
Services Regulator to investigate the affairs of the Authorised Person;
or

(e) the imposition of disciplinary measures or disciplinary sanctions on the
Authorised Person in relation to its financial services by any Financial
Services Regulator or any regulated exchange or clearing house.

Guidance

The notification requirement in Rule 11.10.14(c) extends to investigations relating to any
employee or agent of an Authorised Person or a member of its Group, provided the conduct
investigated relates to or impacts on the affairs of the Authorised Person.

Action against an Authorised Person

11.10.15 An Authorised Person must notify the DFSA immediately if:

(a) civil proceedings are brought against the Authorised Person and the
amount of the claim is significant in relation to the Authorised Person’s
financial resources or its reputation; or

(b) the Authorised Person is prosecuted for, or convicted of, any offence
involving fraud or dishonesty, or any penalties are imposed on it for
tax evasion.

Winding up, bankruptcy and insolvency

11.10.16 An Authorised Person must notify the DFSA immediately on:

(a) the calling of a meeting to consider a resolution for winding up the
Authorised Person;

(b) an application to dissolve the Authorised Person or to strike it from the
register maintained by the DIFC Registrar of Companies, or a
comparable register in another jurisdiction;

(c) the presentation of a petition for the winding up of the Authorised
Person;

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(d) the making of, or any proposals for the making of, a composition or
arrangement with creditors of the Authorised Person; or

(e) the application of any person against the Authorised Person for the
commencement of any insolvency proceedings, appointment of any
receiver, administrator or provisional liquidator under the law of any
country.

Accuracy of information

11.10.17 An Authorised Person must take reasonable steps to ensure that all
information that it provides to the DFSA in accordance with any legislation
applicable in the DIFC is:

(a) factually accurate or, in the case of estimates and judgements, fairly
and properly based; and

(b) complete, in that it should include anything of which the DFSA would
reasonably expect to be notified.

11.10.18 (1) An Authorised Person must notify the DFSA immediately it becomes
aware, or has information that reasonably suggests, that it:

(a) has or may have provided the DFSA with information which
was or may have been false, misleading, incomplete or
inaccurate; or

(b) has or may have changed in a material particular.

(2) Subject to (3), the notification in (1) must include details of the
information which is or may be false or misleading, incomplete or
inaccurate, or has or may have changed and an explanation why such
information was or may have been provided and the correct
information.

(3) If the correct information in (2) cannot be submitted with the
notification it must be submitted as soon as reasonably possible.

11.10.19 In the case of an Insurer which is a Protected Cell Company, an Insurer must
advise the DFSA immediately it becomes aware of any actual or prospective
significant change in the type or scale of the business conducted through a
Cell, or the ownership of the Cell shares.

Information relating to corporate governance and remuneration

11.10.20 (1)
Subject to (2), an Authorised Firm must provide to the DFSA notice of
any significant changes to its corporate governance framework or the
remuneration structure or strategy as soon as practicable.

(2)
An Authorised Firm which is a Branch must provide notice of any
significant changes to its corporate governance framework or the
remuneration structure or strategy only if the changes are relevant to
the activities and operations of the Branch.

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Guidance

1.
The purpose of these notifications is to ensure that the DFSA is informed of any
significant changes to the Authorised Firm’s corporate governance framework and
remuneration structure and strategies.

2.
Significant changes that the DFSA expects Authorised Firms to notify the DFSA
pursuant to Rule 11.10.20 generally include:

a.
any major changes to the composition of the Governing Body;

b.
any changes relating to Persons Undertaking Key Control Functions, such as their
removal or new appointments or changes in their reporting lines; and

c.
significant changes to the remuneration structure that apply to the members of the
Governing Body, senior management, Persons Undertaking Key Control
Functions and major risk taking Employees.

3. The DFSA expects Branches to provide to the DFSA notification of significant
changes that are relevant to the Branch operations.

11.11 Provision of notifications and reports

11.11.1 (1) Unless a Rule states otherwise, an Authorised Person must ensure
that each notification or report it provides to the DFSA is:

(a) in writing and contains the Authorised Person’s name and
Licence number; and

(b) addressed for the attention of (in the case of an Authorised
Firm) the Supervision Department and (in the case of an
Authorised Market Institution) the Markets Department and
delivered to the DFSA by:

(i) post to the current address of the DFSA;

(ii) hand delivered to the current address of the DFSA;

(iii) electronic mail to an address provided by the DFSA; or

(iv) faxed to a fax number provided by the DFSA.

(2) In (1)(b) confirmation of receipt must be obtained.

11.12 Requirement to provide a report

11.12.1 This section applies to every Authorised Person other than a Representative
Office.

Guidance

1. Under Article 74, the DFSA may require an Authorised Person to provide it with a
report on any matter. The Person appointed to make a report must be a Person
nominated or approved by the DFSA. This Person will be referred to throughout the
Rulebook as an independent expert.

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107 GEN/VER33/07-13

2. When requesting a report under Article 74, the DFSA may take into consideration the
matters set out in the RPP Sourcebook.

Independent Expert

11.12.2 (1) The DFSA may, by sending a notice in writing, require an Authorised
Person to provide a report by an independent expert. The DFSA may
require the report to be in whatever form it specifies in the notice.

(2) The DFSA will give written notification to the Authorised Person of the
purpose of its report, its scope, the timetable for completion and any
other relevant matters.

(3) The independent expert must be appointed by the Authorised Person
and be nominated or approved by the DFSA.

(4) The Authorised Person must pay for the services of the independent
expert.

Guidance

1. If the DFSA decides to nominate the independent expert, it will notify the Authorised
Person accordingly. Alternatively, if the DFSA is content to approve the independent
expert selected by the Authorised Person it will notify it of that fact.

2. The DFSA will only approve an independent expert that in the DFSA’s opinion has
the necessary skills to make a report on the matter concerned.

11.12.3 When an Authorised Person appoints an independent expert, the Authorised
Person must ensure that:

(a) the independent expert co-operates with the DFSA; and

(b) the Authorised Person provides all assistance that the independent
expert may reasonably require.

11.12.4 When an Authorised Person appoints an independent expert, the Authorised
Person must, in the contract with the independent expert:

(a) require and permit the independent expert to co-operate with the
DFSA in relation to the Authorised Person and to communicate to the
DFSA information on, or his opinion on, matters of which he has, or
had, become aware in his capacity as an independent expert reporting
on the Authorised Person in the following circumstances:

(i) the independent expert reasonably believes that, as regards
the Authorised Person concerned:

(A) there is or has been, or may be or may have been, a
contravention of any relevant requirement that applies
to the Authorised Person concerned; and

(B) that the contravention may be of material significance
to the DFSA in determining whether to exercise, in
relation to the Authorised Person concerned, any

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108 GEN/VER33/07-13
powers conferred on the DFSA under any provision of
the Regulatory Law 2004;

(ii) the independent expert reasonably believes that the
information on, or his opinion on, those matters may be of
material significance to the DFSA in determining whether the
Authorised Person concerned satisfies and will continue to
satisfy the fit and proper requirements; or

(iii) the independent expert reasonably believes that the
Authorised Firm is not, may not be, or may cease to be, a
going concern;

(b) require the independent expert to prepare a report within the time
specified by the DFSA; and

(c) waive any duty of confidentiality owed by the independent expert to
the Authorised Person which might limit the provision of information or
opinion by that independent expert to the DFSA in accordance with (a)
or (b).

11.12.5 An Authorised Person must ensure that the contract required under Rule
11.12.4:

(a) is governed by the laws of the DIFC;

(b) expressly provides that the DFSA has a right to enforce the provisions
included in the contract under Rule 11.12.4;

(c) expressly provides that, in proceedings brought by the DFSA for the
enforcement of those provisions, the independent expert is not to have
available by way of defence, set-off or counter claim any matter that is
not relevant to those provisions;

(d) if the contract includes an arbitration agreement, expressly provides
that the DFSA is not, in exercising the right in (b) to be treated as a
party to, or bound by, the arbitration agreement; and

(e) provides that the provisions included in the contract under Rule
11.12.4 are irrevocable and may not be varied or rescinded without
the DFSA’s consent.

11.13 Imposing Restrictions on an Authorised Person’s business
or on an Authorised Person dealing with property

11.13.1 The DFSA has the power to impose a prohibition or requirement on an
Authorised Person in relation to the Authorised Person’s business or in
relation to the Authorised Person’s dealing with property under Article 75 or
Article 76 in circumstances where:

(a) there is a reasonable likelihood that the Authorised Person will
contravene a requirement of any legislation applicable in the DIFC;

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(b) the Authorised Person has contravened a relevant requirement and
there is a reasonable likelihood that the contravention will continue or
be repeated;

(c) there is loss, risk of loss, or other adverse effect on the Authorised
Person’s customers;

(d) an investigation is being carried out in relation to an act or omission by
the Authorised Person that constitutes or may constitute a
contravention of any applicable law or Rule;

(e) an enforcement action has commenced against the Authorised Person
for a contravention of any applicable law or Rule;

(f) civil proceedings have commenced against the Authorised Person;

(g) the Authorised Person or any Employee of the Authorised Person may
be or has been engaged in market abuse;

(h) the Authorised Person is subject to a merger;

(i) a meeting has been called to consider a resolution for the winding up
of the Authorised Person;

(j) an application has been made for the commencement of any
insolvency proceedings or the appointment of any receiver,
administrator or provisional liquidator under the law of any country for
the Authorised Person;

(k) there is a notification to dissolve the Authorised Person or strike it
from the DIFC register of Companies or the comparable register in
another jurisdiction;

(l) there is information to suggest that the Authorised Person is involved
in financial crime; or

(m) the DFSA considers that this prohibition or requirement is necessary
to ensure customers, Authorised Persons or the financial system are
not adversely affected.

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APP1 DEPOSITS

A1.1 Definition of a deposit

A1.1.1 (1) A Deposit means a sum of money paid on terms:

(a) under which it will be repaid, with or without interest or a
premium, and either on demand or at a time or in
circumstances agreed by or on behalf of the Person making
the payment and the Person receiving it; and

(b) which is not referable to the provision of property (other than
currency) or services or the giving of security.

(2) In (1) money is paid on terms which are referable to the provision of
property or services or the giving of security if:

(a) it is paid by way of advance or part payment under a contract
for the sale, hire or other provision of property or services, and
is repayable only in the event that the property or services are
not in fact sold, hired or otherwise provided;

(b) it is paid by way of security for the performance of a contract or
by way of security in respect of loss which may result from the
non-performance of a contract; or

(c) without prejudice to (b), it is paid by way of security for the
delivery up of property, whether in a particular state of repair or
otherwise.

Exclusions

A1.1.2 A sum is not a Deposit if it is paid:

(a) by a Person in the course of carrying on a business consisting wholly
or to a significant extent of lending money;

(b) by one company to another at a time when both are members of the
same Group;

(c) by an Authorised Firm authorised under its Licence to carry on the
following Financial Services:

(i) Accepting Deposits;

(ii) Effecting Contracts of Insurance; or

(iii) Carrying Out Contracts of Insurance; or

(d) by a Person who is a close relative of the Person receiving it or who is
a director, manager or Controller of that Person.

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A1.1.3 A sum is not a Deposit if it is received:

(a) by a lawyer registered as an Ancillary Service Provider and acting in
his professional capacity;

(b) by an accountant registered as an Ancillary Service Provider and
acting in his professional capacity;

(c) by an Authorised Firm or an Authorised Market Institution authorised
under its Licence to carry on any one or more of the following
Financial Services:

(i) Dealing in Investments as Principal;

(ii) Dealing in Investments as Agent;

(iii) Arranging Credit or Deals in Investments;

(iv) Managing Assets;

(v) Operating a Collective Investment Fund;

(vi) Effecting Contracts of Insurance;

(vii) Carrying Out Contracts of Insurance;

(viii) Operating an Exchange;

(ix) Operating a Clearing House;

(x) Insurance Broking;

(xi) Insurance Management;

(xii) Managing a Profit Sharing Investment Account; or

(xiii) Providing Trust Services.

in the course of or for the purpose of any such Financial Service
disregarding any applicable exclusions in chapter 2; or

(d) by a Person as consideration for the issue by him of a Debenture.

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APP2 INVESTMENTS

A2.1 General definition of investments

Investments

A2.1.1 (1) An Investment is, subject to (3), either:

(a) a Security; or

(b) a Derivative,

as defined in Rule A2.1.2 or Rule A2.1.3.

(2) Such a Security or Derivative includes:

(a) a right or interest in the relevant Security or Derivative; and

(b) any instrument declared as a Security or Derivative pursuant to
Rule A2.4.1(1).

(3) Where a Rule provides that a Security or Derivative has a different
classification for a specified purpose, it shall have that effect for that
specified purpose and no other purpose.

Guidance

An example of the application of Rule A2.1.1 (3) is Rule A2.1.2(2), where a Derivative is
treated as a Security for the purposes of the requirements in PIB.

Security

A2.1.2 (1) For the purposes of Rule A2.1.1(1)(a), a Security is:

(a) a Share;

(b) a Debenture;

(c) a Warrant;

(d) a Certificate;

(e) a Unit; or

(f) a Structured Product.

(2) For the purposes of the requirements in PIB, each Derivative specified
in Rule A2.1.3 is to be treated as a Security.

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Derivative

A2.1.3 For the purposes of Rule A2.1.1(1)(b), a Derivative is:

(a) an Option; or

(b) a Future.

A2.2 Definitions of specific securities

A2.2.1 For the purposes of Rule A2.1.2:

Shares

(a) a Share is a share or stock in the share capital of any Body Corporate
or any unincorporated body but excluding a Unit;

Debentures

(b)
a Debenture is an instrument creating or acknowledging
indebtedness, whether secured or not, but excludes:

(i) an instrument creating or acknowledging indebtedness for, or
for money borrowed to defray, the consideration payable under
a contract for the supply of goods or services;

(ii) a cheque or other bill of exchange, a banker’s draft or a letter
of credit (but not a bill of exchange accepted by a banker);

(iii) a banknote, a statement showing a balance on a bank
account, or a lease or other disposition of property; and

(iv) a Contract of Insurance;

Guidance

1. A Debenture may include a bond, debenture stock, loan stock or note.
Certain Islamic products (“Sukuk”) structured as a debt instrument can also
fall within this definition.

2. If the interest or financial return component on a debt instrument is to be
calculated by reference to fluctuations of an external factor such as an
index, exchange rate or interest rate, that does not prevent such an
instrument being characterised as a Debenture.

Warrants

(c) a Warrant is an instrument
that confers on the holder a right entitling
the holder to acquire an unissued Share, Debenture or Unit;

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Guidance

A Warrant confers on the holder an entitlement (but not an obligation) to acquire an unissued
Share, Debenture or Unit, thereby distinguishing it from a call Option which entitles the
holder, upon exercise, to acquire an already issued (i.e. existing) Security.

Certificates

(d) a Certificate is an instrument:

(i) which confers on the holder contractual or property rights to or
in respect of a Share, Debenture, Unit or Warrant held by a
Person; and

(ii) the transfer of which may be effected by the holder without the
consent of that other Person;

but excludes rights under an Option;

Guidance

Certificates confer rights over existing Shares, Debentures, Units or Warrants held by
a Person and include receipts, such as Global Depository Receipts (i.e. GDRs).

Units

(e) a Unit is a unit in or a share representing the rights or interests of a
Unitholder in a Fund; and

Structured Products

(f) a Structured Product is an instrument comprising rights under a
contract where:

(i) the gain or loss of each party to the contract is ultimately
determined by reference to the fluctuations in the value or
price of property of any description, an index, interest rate,
exchange rate or a combination of any of these as specified for
that purpose in the contract (“the underlying factor”) and is not
leveraged upon such fluctuations;

(ii) the gain or loss of each party is wholly settled by cash or set-
off between the parties;

(iii) each party is not exposed to any contingent liabilities to any
other counterparty; and

(iv) there is readily available public information in relation to the
underlying factor;

but excludes any rights under an instrument:

(v) where one or more of the parties takes delivery of any property
to which the contract relates;

(vi) which is a Debenture; or

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115 GEN/VER33/07-13
(vii) which is a Contract of Insurance.

Guidance

1. Instruments previously known as Designated Investments are now included within
the definition of Structured Products.

2. The reference in Rule A2.2.1(f)(i) to “property of any description” covers tangible or
intangible property, including Securities.

A2.3 Definitions of specific derivatives

A2.3.1 For the purposes of Rule A2.1.3:

Options

(a) An Option is an instrument that confers on the holder, upon exercise,
rights of the kind referred to in any of the following:

(i) a right to acquire or dispose of:

(A) a Security (other than a Warrant) or contractually based
investment;

(B) currency of any country or territory;

(C) a commodity of any kind;

(ii) a right to receive a cash settlement, the value of which is
determined by reference to:

(A) the value or price of an index, interest rate or exchange
rate; or

(B) any other rate or variable; or

(iii) a right to acquire or dispose of another Option under (i) or (ii).

Guidance

1. For example, a call Option confers on the holder, upon exercise, a right but not an
obligation to acquire an issued (i.e. existing) Security, thereby distinguishing it from
a Warrant which entitles the holder, upon exercise, to acquire an unissued Share,
Debenture or Unit.

2. Options over a ‘contractually based investment’ referred to in Rule A2.3.1(a)(i)(A)
covers Options over Futures.

3. Cash settled Options such as Index Options are covered under Rule A2.3.1(a)(ii).
Other cash settled Options that are covered under this Rule include instruments which
confer rights determined by reference to climatic variables, inflation or other official
economic statistics, freight rates or emission allowances.

4. Options over Options are covered under A2.3.1(a)(iii).

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Futures

(b) a Future is an instrument comprising rights under a contract:

(i) for the sale of a commodity or property of any other description
under which delivery is to be made at a future date and at a
price agreed on when the contract is made, and that contract:

(A) is made or traded on a regulated exchange;

(B) is made or traded on terms that are similar to those
made or traded on a regulated exchange; or

(C) would, on reasonable grounds, be regarded as made
for investment and not for commercial purposes; or

(ii) where the value of the contract is ultimately determined by
reference, wholly or in part, to fluctuations in:

(A) the value or price of property of any description; or

(B) an index, interest rate, any combination of these,
exchange rate or other factor designated for that
purpose in the contract; and

which is wholly settled by cash or set-off between the parties
but excludes:

(C) rights under a contract where one or more of the
parties takes delivery of any property to which the
contract relates;

(D) a contract under which money is received by way of
deposit or an acknowledgement of a debt on terms that
any return to be paid on the sum deposited or received
will be calculated by reference to an index, interest
rate, exchange rate or any combination of these or
other factors; or

(E) a Contract of Insurance.

Guidance

1. An over the counter (OTC) contract may qualify as a Future under Rule
A2.3.1(b)(i)(C) if it can reasonably be regarded as being made for investment and not
for commercial purposes. Some of the indicative factors that such a contract is
reasonably likely to be made for commercial rather than investment purposes include
the following:

a. a party to the contract is the producer or a user of the underlying commodity;

b. the delivery of the underlying commodity is intended to take place within 7
days of the date of the contract;

c. there is no provision made in the contract for margin arrangements; and

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d. the terms of the contract are not standardised terms.

2. A contract under Rule A2.3.1(b)(i) can provide for the physical delivery of the
underlying commodity or property. Further, the price agreed under such a contract
can be by reference to an underlying factor, such as by reference to an index or a spot
price on a given date.

3. Contracts for differences (CFDs) fall under the definition in A2.3.1(b)(ii) and may
include credit default swaps (CDSs) and forward rate agreements (FRAs). More
exotic types of Derivative contracts may also fall within the definition in
A2.3.1(b)(ii). These can include weather or electricity derivatives where the
underlying factor by reference to which the parties’ entitlements are calculated can be
the number of days in a period in which the temperature would reach below or above
a specified level.

A2.4 Financial instrument declared as an investment

A2.4.1 (1) The DFSA may, subject to (5), declare by written notice any financial
instrument or class of financial instruments to be a particular type of
an existing Security or Derivative as defined in these Rules or a new
type of a Security or Derivative. It may do so on such terms and
conditions as it considers appropriate.

(2) The DFSA may exercise the power under (1) either upon written
application made by a Person or on its own initiative.

(3) Without limiting the generality of the matters that the DFSA may
consider when exercising its power under (1), it must consider the
following factors:

(a) the economic effect of the financial instrument or class of
financial instruments;

(b) the class of potential investors to whom the financial
instrument is intended to be marketed;

(c) the treatment of similar financial instruments for regulatory
purposes in other jurisdictions; and

(d) the possible impact of such a declaration on any person
issuing or marketing such a financial instrument.

(4) A Person who makes an application for a declaration under (1) must
address, as far as practicable, the factors specified in (3).

(5) The DFSA must publish any proposed declaration under (1) for public
consultation for at least 30 days from the date of publication, except
where:

(a) it declares a financial instrument to be a particular type of an
existing Security or Derivative;

(b) it determines that any delay likely to result from public
consultation is prejudicial to the interests of the DIFC; or

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(c) it determines that there is a commercial exigency that warrants
such a declaration being made without any, or shorter than 30
day, public consultation.

Guidance

1. The terms and conditions that may be imposed on a declaration made by the DFSA
under Rule A2.4.1(1) can include who should be the Reporting Entity and the type of
disclosure requirements that should apply to that Reporting Entity.

2. If any issuer of a new financial instrument has any doubt as to whether that
instrument can be included in an Official List of Securities as a particular type of a
Security, that Person should first raise those issues with the relevant Authorised
Market Institution before making an application to the DFSA for the exercise of the
declaration power under this Rule. The DFSA has a discrete power to object to any
proposed inclusion of a Security in an Official List of Securities of an Authorised
Market Institution (see Article 34(1) of the Markets Law 2012).

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APP3 BEST PRACTICE RELATING TO CORPORATE
GOVERNANCE AND REMUNERATION

A3.1 Best practice relating to corporate governance

Guidance

Roles of the Governing Body and the senior management

1. The Governing Body should adopt a rigorous process for setting and approving and
overseeing the implementation of, the Authorised Person’s overall business
objectives and risk strategies, taking into account the long term financial safety and
soundness of the firm as a whole, and the protection of its customers and
stakeholders. These objectives and strategies should be adequately documented and
properly communicated to the firm’s senior management, Persons Undertaking Key
Control Functions (such as the heads of risk management and compliance) and all the
other relevant Employees. Senior management should ensure the effective
implementation of such strategies in carrying out the day-to-day management of the
Authorised Person’s business.

2. The Governing Body, with the support of the senior management, should take a lead
in setting the “tone at the top”, including by setting the fundamental corporate values
that should be pursued by the Authorised Person. These should, to the extent
possible, be supported by professional standards and codes of ethics that set out
acceptable and unacceptable conduct. Such professional standards and codes of
ethics should be clearly communicated to those individuals involved in the conduct
of business of the firm.

3. The Governing Body should review the overall business objectives and strategies at
appropriate intervals (at least annually) to ensure that they remain suitable in light of
any changes in the internal or external business and operating conditions.

4. The Governing Body should also ensure that the senior management is effectively
discharging the day-to-day management of the Authorised Person’s business in
accordance with the business objectives and strategies that have been set or approved
by the Governing Body. For this purpose, the Governing Body should ensure that
there are clear and objective performance goals and measures (and an objective
assessment against such criteria at reasonable intervals), for the Authorised Person
and the members of its Governing Body and the senior management to ascertain
whether the firm’s business objectives and risk strategies are implemented effectively
and as intended.

Internal governance of the Governing Body

5. The Governing Body should have appropriate practices and procedures for its own
internal governance, and ensure that these are followed, and periodically reviewed to
ensure their effectiveness and adequacy. These policies and procedures should cover
a formal and transparent process for nomination, selection, and removal of the
members of the Governing Body (see paragraph 2.2.14 of the RPP Sourcebook), and
a specified term of office as appropriate to the roles and responsibilities of the
member, particularly to ensure the objectivity of his decision making and judgement.
Appropriate succession planning should also form part of the Governing Body’s
internal governance practices.

6. The Governing Body should meet sufficiently regularly to discharge its duties
effectively. There should be a formal schedule of matters specifically reserved for its
decision. The working procedures of the Governing Body should be well defined.

7. The Governing Body should also ensure that when assessing the performance of the
members of the Governing Body and its senior managers and Persons Undertaking
Key Control Functions, the independence and objectivity of that process is achieved

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120 GEN/VER33/07-13
through appropriate mechanisms, such as the assignment of the performance
assessment to an independent member of the Governing Body or a committee of the
Governing Body comprising a majority of independent members. See paragraph
2.2.15(b)(iii) of the RPP Sourcebook for the independence criteria for Authorised
Firms and paragraphs 2.2.16 and 2.2.18 of the RPP Sourcebook for the independence
criteria for Authorised Market Institutions.

Committees of the Governing Body

8. To support the effective discharge of its responsibilities, the Governing Body should
establish its committees as appropriate. The committees that a Governing Body may
commonly establish, depending on the nature, scale and complexity of its business
and operations, include the audit, remuneration, ethics/compliance, nominations and
risk management committees. Where committees are appointed, they should have
clearly defined mandates, authority to carry out their respective functions, and the
degree of independence and objectivity as appropriate to the role of the committee.
If the functions of any committees are combined, the Governing Body should ensure
such a combination does not compromise the integrity or effectiveness of the
functions so combined. In all cases, the Governing Body remains ultimately
responsible for the matters delegated to any such committees.

Independence and objectivity

9. The Governing Body should establish clear and objective independence criteria
which should be met by a sufficient number of members of the Governing Body to
promote objectivity and independence in decision making by the Governing Body.
See paragraph 2.2.15(b)(iii) of the RPP Sourcebook for independence criteria).

Powers of the Governing Body

10. To be able to discharge its role and responsibilities properly, the Governing Body
should have adequate and well-defined powers, which are clearly set out either in the
legislation or as part of the constituent documents of the Authorised Person (such as
the constitution, articles of incorporation and organisational rules). These should, at a
minimum, include the power to obtain timely and comprehensive information
relating to the management of the firm, including direct access to relevant persons
within the organisation for obtaining information such as its senior management and
Persons Undertaking Key Control Functions (such as the head of compliance, risk
management or internal audit).

Role of user committees

11. An Authorised Market Institution should consider all relevant stakeholders’ interests,
including those of its Members and other participants, and issuers, in making major
decisions, such as those relating to its system’s design, overall business strategy and
rules and procedures. An Authorised Market Institution which has cross-border
operations should ensure that full range of views across jurisdictions in which it
operates is appropriately considered in its decision-making process.

12. In some instances, an Authorised Market Institution may be required under the
applicable Rules to undertake public consultation in relation to certain matters, such
as any proposed amendments to its Business Rules under AMI Rule 5.6.5.

13. Effective mechanisms for obtaining stakeholder input to the Authorised Market
Institution’s decision-making process, including where such input is mandatory,
include the establishment of, and consultation with, user committees. As opinions
among interested parties are likely to differ, an Authorised Market Institution should
have clear processes for identifying and appropriately managing the diversity of
stakeholder views and any conflicts of interest between stakeholders and the
Authorised Market Institution.

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14. Where an Authorised Market Institution establishes user committees to obtain
stakeholder input to its decision making, to enable such committees to be effective,
an Authorised Market Institution should structure such committees to:

a. have adequate representation of the Authorised Market Institution’s
Members and other participants, and stakeholders including issuers. The
other stakeholders of an Authorised Market Institution may include clients
of its Members or participants, custodians and other service providers;

b. have direct access to the members of the Authorised Market Institution’s
Governing Body and members of the senior management as appropriate;

c. not be subject to any direct or indirect influence by the senior management
of the Authorised Market Institution in carrying out their functions; and

d. have clear terms of reference (mandates) which include matters on which
the advice of user committees will be sought. For example, the criteria for
selecting Members, setting service levels and pricing structures and for
assessing the impact on Members and other stakeholders of any proposed
material changes to the Authorised Market Institution’s existing
arrangements (section 4.3 of AMI) and any amendments to its Business
Rules (AMI Rule 5.6.4); and

e. have adequate internal governance arrangements (such as the regularity of
committee meetings and the quorum and other operational procedures).

A3.2 Best practice relating to remuneration

Guidance

Development and monitoring of the remuneration structure

1. To ensure that the remuneration structure and strategies of the Authorised Person are
appropriate to the nature, scale and complexity of the Authorised Person’s business,
the Governing Body should take account of the risks to which the firm could be
exposed as a result of the conduct or behaviour of its Employees. The Governing
Body should play an active role in developing the remuneration strategy and policies
of the Authorised Person. A remuneration committee of the Governing Body could
play an important role in the development of the firm’s remuneration structure and
strategy.

2. For this purpose, particularly where remuneration structure and strategies contain
performance based remuneration (see also Guidance no 7 and 8 below), consideration
should be given to various elements of the remuneration structure such as:

a. the ratio and balance between the fixed and variable components of
remuneration and any other benefits;

b. the nature of the duties and functions performed by the relevant Employees
and their seniority within the firm;

c. the assessment criteria against which performance based components of
remuneration are to be awarded; and

d. the integrity and objectivity of the process of performance assessment against
the set criteria.

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3. Generally, not only the senior management but also the Persons Undertaking Key
Control Functions should be involved in the remuneration policy-setting and
monitoring process to ensure the integrity and objectivity of the process.

Who should be covered by remuneration policy

4. An Authorised Person’s remuneration policy should, at a minimum, cover those
specified in Rule 5.3.31(1)(c). Accordingly, the members of the Governing Body,
the senior management, the Persons Undertaking Key Control Functions and any
major risk taking Employees should be included in the firm’s remuneration policy.
With the exception of the ‘senior management’, all the other three categories attract
their own definitions. Although the expression “senior management” carries its
natural meaning, Rule 5.3.30(3) describes the senior management’s role as the “day-
to-day management of the firm’s business…” Guidance No. 3 under Rule 5.3.3 gives
further clarification as to who may perform senior management functions.

Remuneration of Persons Undertaking Key Control Functions

5. Any performance based component of remuneration of Persons Undertaking Key
Control Functions as well as other Employees undertaking activities under the
direction and supervision of those Persons should not be linked to the performance of
any business units which are subject to their control or oversight. For example,
where risk and compliance functions are embedded in a business unit, a clear
distinction should be drawn between the remuneration structure applicable to those
Persons Undertaking Key Control Functions and the Employees undertaking
activities under their direction and supervision on the one hand and the other
Employees in the business unit on the other hand
This may be achieved by separating
the pools from which remuneration is paid to the two groups of Employees,
particularly where such remuneration comprises performance based variable
remuneration.

Use of variable remuneration

6. Where an Authorised Person includes in its remuneration structure performance
based variable components (such as bonuses, equity participation rights such as share
based awards or other benefits), especially if they form a significant portion of the
overall remuneration structure, or remuneration of any particular Employees or class
of Employees, the Governing Body should ensure that there are appropriate checks
and balances relating to their award. This is because, while such performance based
remuneration is an effective tool in aligning the interests of the Employees with the
interests of the firm, if used without necessary checks and balances, it could lead to
inappropriate risk taking by Employees.

7. Therefore, the Governing Body should, when using any performance based variable
component in the Authorised Person’s remuneration structure, ensure that:

a. the overall remuneration structure contains an appropriate mix of fixed and
variable components. For example, if the fixed component of remuneration
of an Employee is very small relative to the variable (eg. bonus) component,
it may become difficult for the firm to reduce or eliminate bonuses even in a
poor performing financial year;

b. there are clear and objective criteria for allocating performance based
remuneration (see below in Guidance note (7);

c. there are appropriate adjustments for the material ‘current’ and ‘future’ risks
associated with the performance of the relevant Employee, as the time
horizon in which risks could manifest themselves may vary. For example,
where practicable, the measurement of performance should be set in a multi-
year framework. If this is not practicable, there should be deferral of
vesting of the benefits or retention or claw-back arrangements applicable to
such components as appropriate;

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123 GEN/VER33/07-13

d. there are appropriate prudential limits, consistent with the Authorised
Person’s capital management strategy and its ability to maintain a sound
capital base taking account of the internal capital targets or regulatory
capital requirements;

e. in the case of Employees involved in the distribution of financial products
whose remuneration is commission based, there are adequate controls and
monitoring to mitigate marketing which is solely commission driven; and

f. the use of guaranteed bonuses is generally avoided as such payments are not
consistent with sound risk management and performance based rewards.
However, there may be circumstances where such guaranteed bonuses may
be paid to attract new Employees (for example to compensate bonuses
forfeited from the previous employer).

Performance assessment

8. The performance criteria applicable, particularly relating to the variable components
of remuneration, as well as the performance assessment against such criteria,
contribute to the effectiveness of the use of performance based remuneration.
Therefore, the Governing Body should ensure that such criteria:

a. are clearly defined and objectively measurable;

b. include not only financial but also non-financial elements as appropriate
(such as compliance with regulation and internal rules, achievement of risk
management goals as well as compliance with market conduct standards and
fair treatment of customers);

c. take account of not only the individual’s performance, but also the
performance of the business unit concerned and the overall results of the
firm and if applicable the Group; and

d. do not treat growth or volume as an element in isolation from other
performance measurements included in the criteria.

Severance payments

9. Where an Authorised Person provides discretionary payouts on termination of
employment (“severance payments”, also called “golden parachutes”), such payment
should generally be subject to appropriate limits or shareholder approval. In any
case, such payouts should be aligned with the firm’s overall financial condition and
performance over an appropriate time horizon and should not be payable in the case
of failure or threatened failure of the firm, particularly to an individual whose actions
may have contributed to the failure or potential failure of the firm.

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APP4 CONTRACTS OF INSURANCE

A4.1 Definition of a contract of insurance

A4.1.1 A Contract of Insurance means any contract of insurance or contract of
reinsurance.

A4.1.2 The classes of life insurance are as follows:

Class I – Life and annuity

(a) Contracts of insurance on human life or contracts to pay annuities on
human life, but excluding, in each case, contracts within (c).

Class II – Marriage and birth

(b) Contracts of insurance to provide a sum on marriage or on the birth of
a child, being contracts expressed to be in effect for a period of more
than one year.

Class III – Linked long term

(c) Contracts of insurance on human life or contracts to pay annuities on
human life where the benefits are wholly or partly to be determined by
reference to the value of, or the income from, property of any
description (whether or not specified in the contracts) or by reference
to fluctuations in, or in an index of, the value of property of any
description (whether or not so specified).

Class IV – Permanent health

(d) Contracts of insurance providing specified benefits against risks of
individuals becoming incapacitated in consequence of sustaining
injury as a result of an accident or of an accident of a specified class
or of sickness or infirmity, being contracts that:

(i) are expressed to be in effect for a period of not less than five
years, or until the normal retirement age for the individuals
concerned, or without limit of time; and

(ii) either are not expressed to be terminable by the Insurer, or are
expressed to be so terminable only in special circumstances
mentioned in the contract.

Class V – Tontines

(e) Tontines.

Class VI – Capital redemption

(f) Contracts, other than contracts in (a) to provide a capital sum at the
end of a term.

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Class VII – Pension fund management

(g) (i) pension fund management contracts; or

(ii) contracts of the kind mentioned in (i) that are combined with
contracts of insurance covering either conservation of capital
or payment of a minimum interest.

A4.1.3 The classes of non-life insurance are as follows:

Class 1 – Accident

(a) Contracts of insurance providing fixed pecuniary benefits or benefits in
the nature of indemnity, or a combination of both, against risks of the
Person insured:

(i) sustaining injury as the result of an accident or of an accident
of a specified class;

(ii) dying as the result of an accident or of an accident of a
specified class; or

(iii) becoming incapacitated in consequence of disease or of
disease of a specified class;

inclusive of contracts relating to industrial injury and occupational
disease.

Class 2 – Sickness

(b) Contracts of insurance providing fixed pecuniary benefits or benefits in
the nature of indemnity, or a combination of the two, against risks of
loss to the Persons insured attributable to sickness or infirmity.

Class 3 – Land vehicles

(c) Contracts of insurance against loss of or damage to vehicles used on
land, including motor vehicles but excluding railway rolling stock.

Class 4 – Marine, aviation and transport

(d) Contracts of insurance:

(i) against loss of or damage to railway rolling stock;

(ii) upon aircraft or upon the machinery, tackle, furniture or
equipment of aircraft;

(iii) upon vessels used on the sea or on inland water, or upon the
machinery, tackle, furniture or equipment of such vessels; or

(iv) against loss of or damage to merchandise, baggage and all
other goods in transit, irrespective of the form of transport.

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Class 5 – Fire and other property damage

(e) Contracts of insurance against loss of or damage to property, other
than property to which classes 3 and 4 relate, due to fire, explosion,
storm, natural forces other than storm, nuclear energy, land
subsidence, hail, frost or any event, such as theft.

Class 6 – Liability

(f) Contracts of insurance against risks of the Persons insured incurring
liabilities to third parties, including risks of damage arising out of or in
connection with the use of motor vehicles on land, aircraft and vessels
on the sea or on inland water, including third-party risks and carrier’s
liability.

Class 7a – Credit

(g) contracts of insurance against risks of loss to the Persons insured
arising from the insolvency of debtors of theirs or from the failure,
otherwise than through insolvency, of debtors of theirs to pay their
debts when due;

Class 7b – Suretyship

(h)
(i) contracts of insurance against risks of loss to the Persons
insured arising from their having to perform contracts of
guarantee entered into by them; or

(ii) contracts for fidelity bonds, performance bonds, administration
bonds, bail bonds or customs bonds or similar contracts of
guarantee.

Class 8 – Other

(i) Contracts of Insurance:

(i) against risks of loss to the Persons insured attributable to
interruptions of the carrying on of business carried on by them
or to reduction of the scope of business so carried on;

(ii) against risks of loss to the Persons insured attributable to their
incurring unforeseen expense;

(iii) against risks of loss to the Persons insured attributable to their
incurring legal expenses, including costs of litigation; and

(iv) providing assistance, whether in cash or in kind, for Persons
who get into difficulties, whether while travelling, while away
from home, while away from their permanent residence, or
otherwise.

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APP5 TRADE REPOSITORY

A5.1 Requirements applicable to Trade Repositories

Disclosure of market data by Trade Repositories

A5.1.1 A Trade Repository must provide data in line with regulatory and industry
expectations to relevant regulatory authorities and the public. Such
information must be comprehensive and at a level of detail sufficient to
enhance market transparency and support other public policy objectives.

Guidance

1. At a minimum, a Trade Repository should provide aggregate data on open positions
and transaction volumes and values and categorised data (for example, aggregated
breakdowns of trading counterparties, reference entities, or currency breakdowns of
products), as available and appropriate, to the public.

2. Relevant regulatory authorities should be given access to additional data recorded in
a Trade Repository, including participant-level data, as relevant to the respective
mandates and legal responsibilities of the relevant regulatory authority (such as
market regulation and surveillance, oversight of exchanges, and prudential
supervision or prevention of market misconduct).

Processes and procedures

A5.1.2 A Trade Repository must have effective processes and procedures to provide
data to relevant authorities in a timely and appropriate manner to enable them
to meet their respective regulatory mandates and legal responsibilities.

Guidance

A Trade Repository should have procedures to facilitate enhanced monitoring, special actions,
or official proceedings taken by relevant authorities in relation to data on troubled or failed
participants by making relevant information in the Trade Repository available in a timely and
effective manner. The provision of data from a Trade Repository to relevant authorities should
be supported from a legal, procedural, operational, and technological perspective.

Information systems

A5.1.3 A Trade Repository must have robust information systems that enable it to
provide accurate current and historical data. Such Data should be provided in
a timely manner and in a format that permits it to be easily analysed.

Guidance

A Trade Repository should collect, store, and provide data to participants, regulatory
authorities, and the public in a timely manner and in a format that can facilitate prompt
analysis. Data should be made available that permits both comparative and historical analysis
of the relevant markets.

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