Regulatory horizon scanning and enforcement
The DFSA issued several circulars during the reporting period:
- On July 1, 2024, the DFSA published a Dear SEO letter on reporting requirements for collective investment rules. The purpose of the letter was to remind Authorised Firms that Manage Collective Investment Funds (“fund managers”) of their obligations and the consequences of non-compliance. The DFSA identified the following reports that had not been produced by the due date in the past:
- Annual and interim reports – CIR 9.4.2(1)
- Periodic fund returns – CIR 9.6.2
The letter also highlights the fixed penalty notice (as set out in the Dear SEO letter dated April 5, 2024), where non-submission of the specified reports by the due date may result in a fixed penalty notice.
- On July 1, 2024, the DFSA issued a Dear SEO letter to notify Authorised Firms of the Artificial Intelligence survey, which was due by July 22, 2024. The DFSA seeks to understand how they can support the safe and responsible adoption of AI in financial services. The survey is focused on:
- Types of AI being used and the extent of its adoption
- The drivers and blockers to the use of AI
- Governance arrangements that Authorised Firms have established in overseeing the use of AI within their business
- On July 5, 2024, the DFSA published a Dear SEO letter regarding the system upgrade to the DFSA e-Portal, which took effect from July 8, 2024. The e-Portal will serve as a single unified login page that will host the DFSA’s online forms and Electronic Prudential Reporting System (“EPRS”) for regulatory submissions. For any questions, firms can use the DFSA Supervised Firm Contact Form via the DFSA e-Portal.
Consultation papers
- On August 6, 2024, the DFSA released notice of Consultation Paper No.160 - Updates to the Client Assets Regime. The deadline for providing comments is October 20, 2024.
Highlights of the key proposed changes:
- Broadening the circumstances in which an Authorised Firm will be controlling client assets under COB Rule 6.11.4(d),
- Clarifying the requirements that apply to an Authorised Firm that only controls client assets under COB Rule 6.11.4(d),
- Clarifying that investments and crypto tokens that are fund property are not client investments or client crypto tokens, respectively, and, as a result, do not fall within the client assets regime, as is already the case for money that is fund property
- Introducing a requirement for Authorised Firms to compile and maintain a client asset crisis preparedness pack to facilitate the prompt identification and return of client assets in a crisis situation,
- Clarifying which aspects of client assets the registered auditors should assess for the purpose of preparing client assets auditor’s reports,
- Converting the third-party agent suitability assessment criteria from guidance to rules and expanding some of the criteria,
- Changing the timing by which the written acknowledgment for client money accounts should be received from third-party agents,
- Improving client money disclosure rules, including more detailed disclosures about the treatment of client money held with third-party agents. Authorised Firms must provide additional information to clients upon request regarding insolvency regime assessments in jurisdictions where third-party agents are located, and disclosure must be made before the client passes money to the Authorised Firm,
- Amending the rules to require more frequent reconciliations of client assets and clarifying that client assets should be recorded and reconciled on a settlement date basis,
- Clarifying the frequency of client reporting and reflecting technological developments,
- Providing more flexibility around naming client accounts, and
- Clarifying the requirements that apply when an Authorised Firm is arranging custody.
Note there are other minor modifications and consequential amendments made in the accompanying draft rules.
Enforcement actions
- On July 18, 2024, the DFSA issued various penalties against Symphony Services Limited and its CEO for misleading and obstructing the DFSA. The DFSA took action against SSL for providing false, misleading, and deceptive information concerning AML monitoring, failing to comply with DFSA requirements, and obstructing the DFSA during a visit to the SSL premises.
- On September 26, 2024, the DFSA accepted an Enforceable Undertaking (“EU”) from Baker Tilly MKM Chartered Accountants (“Baker Tilly”). Baker Tilly failed to assemble complete and final sets of audit documentation for several audit files in a timely manner. This constitutes a violation of the International Standard on Auditing 230, Audit Documentation, and the International Standard of Quality Management 1.
Matters of clarification
- On July 10, 2024, the DFSA clarified the regulatory status of Merlion Capital. A claim published on the firm’s website suggested that it is regulated by the DFSA and operates under a DIFC license, which is false. Merlion Capital is not, and has never been, authorised or licensed by the DFSA to provide financial services or make financial promotions in or from the DIFC.
- On July 15, 2024, the DFSA alerted the financial services community and members of the public to a cryptocurrency scam in which the DFSA was impersonated. The name used by the scammers was “Cryptocurrency Explorer”.
- On August 7, 2024, the DFSA alerted members of the public to a scam in which scammers falsely claimed to be an Authorised Firm regulated by the DFSA in the DIFC. The claim was to be a “Russian Department” of a legitimate firm called CIMD (Dubai) Ltd (CDL). The DFSA informed the community the CDL does not have a Russian department, nor has any agents operating on their behalf.
- On September 3, 2024, the DFSA alerted the public to a scam where an Authorised Firm, Bemo Investment Firm, had been impersonated. Using WhatsApp and phone numbers registered in the United Kingdom and Canada, the scammers purport to be representatives of Bemo Investment Firm Ltd to convince victims to make fictitious investments. They later refuse to return funds to victims unless additional funds are paid to cover necessary fees, claiming to be unable to use funds held on account, and other practices consistent with that of an advance fee scam.
- On September 5, 2024, the DFSA issued an alert to clarify the regulatory status of Bowarr Management Limited, as being incorporated in the DIFC as a non-regulated company and clarifying it has not been authorised by the DFSA to provide financial services or make financial promotions in or from the DIFC.
- On September 10, 2024, the DFSA issued an alert regarding Rasameel Investment House Limited being impersonated in a scam. To make the scam seem authentic, the scammers have cloned the firm’s website by copying the theme, content, and look of the legitimate website and name, logo, and address of the firm. The DFSA strongly advised that individuals should not respond or engage in any communications regarding the above scam, and under no circumstances should you send or give any money to any party connected to the scam.
- On September 19, 2024, the DFSA alerted the financial services community and members of the public to a scam where a DFSA Authorised Firm, Fius Capital Limited, had been impersonated.
- On the 24th of September 2024, the DFSA issued an alert to clarify the regulatory status of a firm called Kensington Capital Equity Partners. Information on the firm’s website is false, the firm has not been incorporated in the DIFC or been authorised by the DFSA to carry on Financial Services or make Financial Promotions in or from the DIFC.
- On September 27, 2024, the DFSA issued an alert to notify the financial services community and members of the public of a fake latter in which the DFSA, the Chairman of the DFSA, and the UAE financial Intelligence Unit were impersonated.
News/Updates
- On July 2, 2024, the DFSA published an Audit Monitoring report outlining key findings from inspections of Registered Auditors conducted in 2022 and 2023. The report examined financial statement audits, regulatory engagements, and anti-money laundering, revealing a significant decline in audit quality that mirror global trends. The report also outlined the measures taken by the DFSA to address challenges faced by auditors and reinforced the importance of integrity and reliability in financial regulations.
- On July 16, 2024, the DFSA issued a notice of amendments to Legislation following the ending of the consultation period on numerous proposed legislative changes in Consultation Papers No. 156 and 158. The DFSA made the following rule-making instruments to come into force on August 1, 2024.
The following rule-making instruments were replaced:
- On August 22, 2024, the DFSA and the Hong Kong Monetary Authority (“HKMA”) announced they will co-host the Climate Conference on September 16, 2024, to strengthen sustainable finance cooperation across Asia and the Middle East. This event will be held in a hybrid format and further promotes Hong Kong and Dubai’s deepening relationship on sustainable finance.
- On August 28, 2024, the DFSA announced its H1 2024 results: driving financial resilience and growth in the DIFC. In H1 2024, the DFSA authorised 61 new firms, marking a 22% increase compared to the same period in 2023, bringing the total number of regulated entities to 837. The wealth management sector experienced a 62% surge in authorised entities, reinforcing the DIFC's status as a premier hub for private banking and asset management in the region. The DIFC also now hosts 27 out of the 29 G-SIBs (Globally Systemically Important Banks), underscoring its critical role in the global banking network.
- On September 16, 2024, the DFSA and HKMA held a joint conference to strengthen sustainable finance collaboration. The conference brought together 240 participants from financial institutions, industry associations, and international organisations across both regions. Under the theme ‘Building a Net-Zero Asia - Middle East Corridor’, the event discussed the demand for and the gap in transition finance, exploring opportunity for greater collaboration between Dubai and Hong.
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