Dubai Financial Services Authority (“DFSA”) regulatory update Q2 2024

Regulatory horizon scanning and enforcement

• The DFSA issued several circulars during the reporting period:
  
  
  • On April 5, 2024, the DFSA issued a Dear SEO letter on “Fixed Penalty Notices”, (“the FPN”), to inform stakeholders of the FPN regime which came into force on April 15, 2024. The DFSA will apply the regime to breaches of certain reporting requirements, including failure to submit regulatory returns by the due date. Changes have been made to the Regulatory Law 2024 (“the Law”) which allows the DFSA to issue FPNs if it has reason to believe that a person has breached prescribed provisions. Increased issuance of penalties will be noted by the DFSA and will be addressed further using supervisory or enforcement powers. The penalty under the FPN will increase with each additional contravention in a single year. The first contravention penalty will be $2,500, the second penalty will be $7,500, and the subsequent penalty will be $15,000.
    
    
  • On May 29, 2024, the DFSA issued a Dear SEO letter on “Whistleblowing Thematic Review 2024” (“the Review”), following on from the whistleblowing regime which came into force on the April 7, 2022. The review focuses on the policies, procedures, and reporting mechanisms of authorised firms to operationalise and demonstrate compliance with the regime, including appropriate escalation procedures, and to ensure that the authorised firms align with the regulatory objectives set out by the DFSA. The review will be conducted in two phases:
    • Phase one - A survey will be sent out to all authorised firms
    • Phase two - The DFSA will conduct on-site visit on a sample basis
      
      
  • Upon completion of the two phases, the DFSA will publish its findings.
    
    
  • On June 11, 2024 the DFSA issued a Dear SEO letter on the “Findings from the 2023-2024 Thematic Review on Firm Disclosures”(“the Review”) to share the key findings and observation of the Review.
    
    
  • By ‘disclosures’, DFSA means all client communications, including, but not limited to, financial promotions and other marketing materials that authorised firms use in relation to their scope of services and responsibilities, terms and conditions of engagements, and financial services and financial products.
    
    
  • Weaknesses were identified in the following areas:
    • Financial promotions requirements
    • Approval and ongoing monitoring of financial promotions
    • Marketing material intended for professional clients
    • Disclosures in marketing materials
    • Scope of services
    • Disclosure of regulatory status and contact details
    • Use of DFSA’s logo
      
      
  • Authorised firms are expected to review their marketing materials, and associated policies, procedures, systems, and controls considering these findings. Where gaps are identified, authorised firms are expected to make the necessary enhancements and document actions taken. The DFSA may request evidence of any actions taken during future engagements.
    
    
  • On May 6, 2024, the DFSA made amendments to the Financial Markets Tribunal’s (“the FMT”) Rules of Procedures, which came into force on the May 2, 2024. The FMT is an independent body established under the DFSA, under the Regulatory Law 2004, to conduct a full merits review of any DFSA decision referred. The FMT can consider new evidence that emerged after the original DFSA decision and can affirm, vary, or set aside that decision. The amendments include, new rules, clarifications, and the expansion of existing rules. To access the rules of procedure of the FMT, please click here.
    
    
  • On May 13, 2024, the DFSA issued amendments to legislation May 2024. The proposed legislative changes were set out in Consultation Paper No 152, 153, and 154. Following the consultation period, the DFSA Board made the following rulemaking instruments, which will come into force on June 3, 2024.
    
    
    1. GENERAL MODULE (GEN) RULE-MAKING INSTRUMENT (No. 376) 2024;
    2. CONDUCT OF BUSINESS MODULE (COB) RULE-MAKING INSTRUMENT (No. 377) 2024:
    3. ANTI-MONEY LAUNDERING, COUNTER-TERRORIST FINANCING AND SANCTIONS MODULE (AML) RULE-MAKING INSTRUMENT (No. 379) 2024;
    4. FEES MODULE (FER) RULE-MAKING INSTRUMENT (No. 380) 2024;
    5. AUTHORISED MARKET INSTITUTIONS MODULE (AMI) RULE-MAKING INSTRUMENT (No. 381) 2024;
    6. AUDITOR MODULE (AUD) RULE-MAKING INSTRUMENT (No. 382) 2024;
    7. GLOSSARY MODULE (GLO) RULE-MAKING INSTRUMENT (No. 383) 2024.
       
       
  • The DFSA Board made the following Rulemaking Instruments to come into force on the January 1, 2025.
    
    
    1. PRUDENTIAL – INVESTMENT, INSURANCE INTERMEDIATION AND BANKING BUSINESS MODULE (PIB) RULE-MAKING INSTRUMENT (No. 384) 2024;
    2. ISLAMIC FINANCE RULES (IFR) RULE-MAKING INSTRUMENT (No. 385) 2024.
                              
       Please click on the link to access further details on the amendments made.
       
       
  • On June 3, 2024, the DFSA announced some key amendments to its Crypto Token Regime (the “Regime”), as outlined in Consultation Paper 153. The Regime has evolved significantly since it first came into force in 2022. The main amendments are in the below sections:
    • Funds
    • Custody
    • Financial crime
    • Recognition of crypto tokens
      
      
  • These changes are based on recent market developments, recommendations from international standard-setters, and the DFSA’s supervisory experience.

Consultation papers

• On May 3, 2024, the DFSA issued a Consultation Paper 159 on Interest Rate Risk in the Banking Book (“IRRBB”) and Risk Appetite Statement. The paper outlines the DFSA’s proposals to update the existing regulatory framework applicable to banks, and other financial institutions, on the treatment of interest rate risk in the Non-Trading Book. It also proposes to introduce a new requirement for producing a risk appetite statement. It also introduces a new requirement for producing a risk appetite statement, aligning with Basel III to enhance banking system resilience.

The IRRBB applies solely to authorised firms in the PIB Category 1 and 2.

The proposal does not cover Islamic Financing. For further information you can refer to the link above.

The deadline for providing comments is August 1, 2024.

Enforcement actions

• On May 21, 2024, the DFSA fined Sarwa Digital Wealth Limited for making a public offer of shares without an approved prospectus, in breach of the Markets Law. The DFSA imposed a financial penalty of USD 191,100 (AED 701,815) on Sarwa DIFC, reduced from USD 390,000 (AED 1,432,275) following mitigation and settlement discounts.

Matters of clarification

• On May 10, 2024, the DFSA issued an alert regarding Kane LPI Solutions Limited. Scammers falsely advertised on Facebook, claiming to be an authorised firm in the DIFC. They contacted investors, urging them to transfer money to a purported DFSA-regulated firm called Kane LPI Solutions Ltd. The scammers created fake websites and used Kane's DIFC office address and reference number.
  
  
• On May 28, 2024, the DFSA issued an alert to clarify that Hedge and Sachs Financing Broker LLC has never been incorporated in the DIFC or authorised by the DFSA to provide financial services or make financial promotions from the DIFC.
  
  
• On June 7, 2024, the DFSA issued an alert over misleading claims made by Manra Capital, an unlicensed firm. Manra Capital falsely claimed in a brochure for a proposed marketing event, taking place in the DIFC that the Tharwa Fund was 'overseen' by ADGM. These claims are false as Manra Capital has never been incorporated in the DIFC or ADGM or authorised by the DFSA or FSRA to provide financial services or make financial promotions.
  
  
• On June 11, 2024, the DFSA issued an alert to clarify that Hemingway Investments LLC and Hemingway has never been incorporated in the DIFC or authorised by the DFSA to provide financial services or make financial promotions from the DIFC.
  
  
• On June 12, 2024, the DFSA issued an alert to clarify the regulatory status of entities under the brand ‘Falcon’. Falcon Global Capital Limited (“FGCL”) was licensed by the DFSA on March 11, 2022 to carry on financial services in or from the DIFC. Other than FGCL, no other entity operating under the name ‘Falcon’ is, or has to date been, licensed by the DFSA to carry on financial services or make financial promotions in or from the DIFC.
  
  
• On June 14, 2024, the DFSA issued an alert to clarify the regulatory status of Polynome Group. The DFSA has become aware of misleading claims in various media outlets that Polynome Group has ’in-principle approval’ from the DIFC and DFSA to launch an ‘AI fund’ and provided ’conditional endorsement’ of the structure and investment strategy of the proposed fund.

News/updates

• On April 2, 2024, the DFSA Chief Executive Ian Johnston was reappointed as the Vice Chair of the Africa and Middle East Regional Committee (AMERC) and a board member of the International Organisation of Securities Commissions (“IOSCO”), for 2024-2026 term. This reappointment in AMERC reaffirms the DFSA's commitment to advancing global regulatory objectives and ensuring that Dubai's financial services sector remains aligned with international best practices.
  
  
• On April 5, 2024, the DFSA and Securities and Futures Commission co-hosted a high-level roundtable on distributing Hong Kong funds in DIFC. More than 15 top executives of Hong Kong asset managers attended, which was presided over by the DFSA’s Chief Executive Ian Johnston and the SFC’s Chief Executive Officer Julia Leung. Johnston introduced the regulatory requirements for offering Hong Kong-domiciled funds in the DIFC, and prospects in DIFC for Hong Kong asset managers, including access to investors in the UAE market through the UAE fund passporting regime.
  
  
• On May 10, 2024, the DFSA issued its Annual Report for 2023 showcasing a year of exceptional growth, innovation, and impactful contributions to Dubai’s economic landscape. Licensing increased by 25%, bringing the total number of licensed firms to 791. This surge underscores the growing confidence in the DFSA’s regulatory framework and the attractiveness of the region for financial services firms. Applications increased by 50% across all business models, reflecting the robust growth and diversity of the financial services sector within the DIFC. The DFSA also witnessed robust growth in ESG securities listings. Fighting financial crime remains a priority for the DFSA as demonstrated by a Memorandum of Understanding (“MoU”) signed with the UAE’s Financial Intelligence Unit, enhancing efforts in anti-money laundering (“AML”) and combating the financing of terrorism (“CTF”).
  
  
• On May 14, 2024, His Highness Sheikh Maktoum bin Mohammed issued the decision to appoint new members to the DFSA’s Board of Directors to increase the diversity of expertise (Robert Ophèle, Andrew Procter, Javan Herberg KC, and Sock Koong Chua). This reinforces the Emirate's approach to consolidating its position as one of the world's leading financial and business centres.
  
  
• On May 31, 2024, the DFSA issued an article on expanding the China-Middle East corridor. The DFSA and Securities and Futures Commission co-hosted a high-level roundtable, marking the continued collaboration between the two regulatory bodies and showcased the attractiveness of Hong Kong as a premier hub for investors. The event reciprocated the DFSA’s recent visit to Hong Kong, demonstrating to Hong Kong firms the appeal of the DIFC.