The Dubai Financial Services Authority (“DFSA”) published its decisions concerning action against its Registered Auditor, KPMG LLP and a former Audit Principal, Mr Milind Navalkar, for failings in respect of the audit of the Abraaj Group entity, Abraaj Capital Limited (“ACLD”).
Both KPMG LLP and Mr Navalkar dispute the DFSA’s findings and have applied for a review of the decisions to the Financial Markets Tribunal (“FMT”) where the parties will present their respective cases. The DFSA’s decisions are therefore provisional and reflect the DFSA’s belief as to what occurred and how it considers KPMG LLP’s and Mr Navalkar’s conduct should be characterised.
The DFSA imposed a financial penalty of USD 1,500,000 on KPMG LLP and USD 500,000 on Mr Navalkar because, in the DFSA’s view, they failed to follow applicable international auditing standards when performing audits of ACLD for a number of years up to October 2017.
In the DFSA’s view, KPMG LLP did not perform its audit of ACLD to the expected standard for more than five years. They further pointed that:
- ACLD’s financial statements did not conform to accounting rules
- ACLD had failed to maintain adequate capital resources
- ACLD was concealing the true state of its finances from KPMG LLP
Mr Navalkar was KPMG LLP’s Audit Principal appointed to the audit of ACLD. He was responsible for signing off the audit report for ACLD’s financial statements and ensuring the audits and reviews of ACLD’s financial statements and DFSA Returns were carried out to the required standard. The DFSA found that Mr Navalkar was knowingly concerned in KPMG LLP’s breaches and he also failed to act with professional competence and care.
UAE regulators host Cyber Risk Supervisory College
The second edition of the GCC Regulators Cyber Risk Supervisory College was hosted by the DFSA, CBUAE and the ADGM. It is a forum where the regulatory authorities supervising the financial institutions in the GCC region, meet and discuss the role of the GCC regulators in mitigating cyber risk, share experiences, discuss current and upcoming cyber risk supervision initiatives and discuss the potential areas for collaboration.
The current meeting focused on trends in cyber risk supervision, the technology risks associated with digital assets and distributed ledger technologies as well as supervisory expectations of cyber risk management practices applied by regulated institutions.
One of the important takeaways from the meeting was the CBUAE’s clear action plan to improve the cyber infrastructure in the UAE’s financial system. The ADGM also stressed in consistently striving to deepen the understanding on the inherent and emerging risks in the cybersecurity field in order to protect the investors in particular. Thereby, key emphasis is placed on the adoption of policies and procedures that shall create a stable and safe financial ecosystem responsive to change.
Cybersecurity Infrastructure strengthens in DIFC
The Cyber Thematic Review Report of 2022 published by the DFSA summarised the key findings in relation to the material improvements in the assessed areas and the other control areas requiring the Authorized Firm’s attention in the DFSA. The overall application of the DFSA Cyber Risk Management Guidelines is improving with most Firms implementing the recommended governance and hygiene guidelines, less implementation was identified in resilience practices. Finally, the review also noted an improvement in the maturity level of Firms’ cybersecurity frameworks with the implementation of the recommended governance and hygiene guidelines. However, there was still some work to be done in the resilience practices.
ADGM’s Registration Authority Bans Babar Abbas from Being a Director for 15 Years imposes Fines of USD 155,000 against Elia Investments Limited and Babar Abbas
The Registration Authority imposed proceedings against Elia Investments Limited (‘Elia’) and Mr. Babar Abbas, Elia’s sole shareholder and former director. The above case involves two instances where Mr. Abbas was involved in fraudulent trading activity contrary to the Companies Regulations 2020 (“CR 2020”) as well as for making a false statement to the Registration Authority. Mr. Abbas used the Company (Elia) as a vehicle for fraudulent trading resulting in significant losses to the victims. He solicited and obtained payments from victims in the form of “deposits” required by Elia for proposed financing arrangements. Elia failed to provide the financing that it promised while Mr. Abbas misappropriated most of the said “deposits”. Elia had a limited ADGM licence, that allowed it to conduct the activities of a special purpose vehicle (“SPV”) only and has now expired. Elia was found to have exceeded the scope of its licence contrary to Commercial Licensing Regulations 2015 in two instances and was fined the maximum of USD 30,000.
The Registration Authority has imposed a fine of USD 100,000 on Mr. Abbas for his fraudulent trading and USD 25,000 for making a false statement to them. In addition, they have disqualified Mr. Abbas from being a director of any ADGM company for a period of 15 years which is the maximum period allowed.
As demonstrated in this matter, the Registration Authority is highly concerned about companies that:
- Misrepresent the scope of their license in the ADGM.
- Falsely purport to be licensed to undertake commercial activity in the ADGM; and/or
- Commit fraudulent trading or other serious contraventions of ADGM commercial legislation.
ADGM FSRA Issues Enhancements to its Capital Markets Framework including Environmental Instruments, Spot Commodities and Virtual Assets
The Financial Services Regulatory Authority (“FSRA”) of Abu Dhabi Global Market (“ADGM”) announced significant enhancements to its capital markets framework, across spot commodities, securities, derivatives, benchmarks, environmental instruments and virtual assets that will further improve on its innovative and progressive regime and leadership in financial markets.
These changes enable allowing greater participation within primary and secondary markets while also ensuring ADGM market participants continue to operate in accordance with and under the protection of, the highest regulatory standards.
This was proposed initially in March 2022 and this received significant supportive feedback from the industry and the stakeholders.
ADGM has now implemented its regulatory framework for spot commodity and environmental instrument activities, making it the first international financial centre in the MENA region to do so. Another region-first inclusion in this framework highlights purpose-built offerings and listing rules relating to mining and petroleum companies. The FSRA has also strengthened its requirements in line with IOSCO and comparable jurisdictions in respect of capital raising requirements, continuous disclosure obligations, preference securities, and weighted voting rights. ADGM has now implemented its regulatory framework for spot commodity and environmental instrument activities, the first to do so in the MENA region.
The FSRA has also strengthened its requirements in line with IOSCO and comparable jurisdictions in respect of capital raising requirements, continuous disclosure obligations, preference securities, and weighted voting rights.
MTFs/Custodians operating within ADGM are now able to seek approval from the FSRA to engage in Non-Fungible Token (“NFT”) activities. This continues to build on the globally leading position established by ADGM in 2018 when it established the first-of-its-kind comprehensive regulatory framework for virtual asset activities.
