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Dubai International Financial Center


Dubai International Financial Centre

New Headquarters to Break Ground Soon

Dubai's plan to develop as a global finance centre received a boost today with the announcement by Deutsche Bank of its intention to be licensed by the Dubai International Financial Centre (DIFC)

Deutsche Bank to be licensed by DIFC

Dubai's plan to develop as a global finance centre received a boost with the announcement by Deutsche Bank of its intention to be licensed by the Dubai International Financial Centre, (DIFC). 

Deutsche Bank, which ranks among the global leaders in corporate banking and securities, transaction banking, asset management, and private wealth management, is also one of the region's leading investment banks. 

The DIFC will issue licenses in January 2003, but Deutsche Bank will begin increasing its senior staffing in Dubai before the end of this year. The bank is already playing a key role in the growth of Dubai as a global finance centre. At the end of September Deutsche Bank launched the $100 million Estithmaar Ventures Fund in a joint venture with The Investment Office of Dubai. It also acted as bookrunner on the recent Emirates Bank International $230 million bond and the Gulf Investment Corporation $300 million bond. Its regional capabilities in corporate and project finance were recognized by winning the award for Best M&A House 2002 in the Middle East by Euromoney and advisor to the Best Project of the Year 2002 by MEED. 

Following a meeting with Anis Al Jallaf, Chairman DIFC, Pierre de Weck, Chairman of Deutsche Bank's Middle East and North Africa Board, and a Group Executive Committee member, announced Deutsche Bank's intention to be licensed by DIFC and to move to new premises in the Dubai Financial District once these become available.

Commenting on Deutsche Bank's decision to set-up in the DIFC, Mr de Weck said:

"We have no doubt that Dubai is an important base for investment banking in the Middle East. The excellent support facilities proposed for the DIFC will make it an exciting place in which to achieve new wealth creation for our clients. Dubai's track record of delivering what it promises in other areas, such as technology and media, gives us confidence that its ambitious plan for international finance is attractive for financial institutions like Deutsche Bank. We are honoured to be amongst the first institutions to be licensed by DIFC and look forward to being part of the success of Dubai as a centre of financial excellence."

Hussain Al Qemzi, COO DIFC added:

"Deutsche Bank's decision is a vote of confidence in our strategy to create a new world financial centre, based on the foundations of firm transparent regulation combined with a highly competitive tax regime and world-class supportive infrastructure. It's a testament to the financial potential of the region that a leading investment bank like Deutsche Bank has committed to be among DIFC's early landmark institutions."



New Headquarters to Break Ground Soon

The Dubai International Financial Centre (DIFC) has appointed Gensler & Associates to design the "DIFC Gate" building, which will be the Headquarters for the DIFC and will symbolically serve as the gateway to the new Dubai Financial District. 

At the beginning of August 2002 the DIFC revealed that it was undertaking a global design competition to fast track the development of the DIFC Gate building. Seven best-of-breed firms were shortlist and asked to present their vision for the building that will become Dubai's latest landmark. 

According to Marwan Al Felasi, Projects Manager for DIFC Real Estate Development, while the competition was fierce, Gensler's design vision delivered a structure that is truly iconic, expressing the core values of the DIFC, while at the same time providing a practical and state - of - the - art working environment. 

Mr Al Felasi went on to explain that the winning design is a contemporary interpretation of the "Arc De Triomphe" in Paris. It will rise fifteen floors above a podium that will house retail and parking facilities. 

A composition of solid stone and stainless steel will form the main arch, while transparent glazed elements will emphasis the open space created at the centre of the building. 

The top of the arch will be expressed by open steel lattice to symbolize transparency, the cornerstone of the DIFC offering.

As well as accommodating the offices of the DIFC, the DIFC Gate will house the Regulatory Authority and Regional Financial Exchange, as well as offering office accommodation for other financial institutions and businesses. 

Mr Al Felasi added that construction is expected to begin in December 2002 and is scheduled for completion by early 2004. 

Commenting on this appointment, Chris Johnson, Managing Director of Gensler's London office said;  

"We are very pleased to be given the opportunity to design this prestigious landmark building, the first in the new Dubai Financial District. This project has given us a fantastic opportunity to create cutting-edge, high quality architecture in a progressive and dynamic city that will lead the way for the new DIFC development." 

LICENSING CRITERIA FOR DIFC

The Regulatory Authority of the DIFC issued an Information Paper on its proposed criteria for institutions and individuals wishing to operate in the DIFC. The full details of the Authority's licensing regime will be finalised later in 2002, but the Authority is now able to provide guidance on the main elements of the structure it expects to have in place.

The over-riding aim of the Authority is to have licensing standards that match or exceed those applying in other leading financial centres. Institutions or individuals wishing to operate in the DIFC will need to be able to show that they meet high standards in their business dealings and have the qualifications and competence appropriate to the roles that they seek to perform. 

Specific requirements on institutions will include the need to provide the Authority with information on its business plan, the key individuals employed and major shareholders and controllers of the institutions, the operating systems and controls for the institution, the compliance systems and internal audit functions, the anti-money laundering procedures, the financial position of the institution and the regulatory history of the institution, i.e. its regulatory 'track record'. 

In addition, individuals being employed by licensed institutions will also need to be registered, if they perform certain specified functions. 

Those individuals will include the institution's managing director or branch manager, the individual responsible for compliance oversight, the individual responsible for systems and controls, the money-laundering reporting officer, or any officer undertaking a significant management function in respect of a regulated activity, a settlement function, the solvency aspect (for insurers) or in respect of customer relations. 

As with firms, there will be high standards for these individuals relating to their honesty, integrity and reputation, their competence and capability, and their personal financial soundness. 

The Regulatory Authority anticipates that institutions will either be established within the DIFC through a subsidiary incorporated in the DIFC, or will operate as a branch of an institution licensed elsewhere. 

Where the institution takes the latter route, the DIFC Regulatory Authority will expect to work closely with the institution's "home regulator" to ensure complete regulatory oversight of the institution and that full co-operation between the regulatory bodies occurs. 

Commenting on this recent development, Phillip Thorpe, Chief Commissioner for the Regulatory Authority, stated: 

"We expect to be able to make application forms for licensing available towards the end of September 2002 and to commence preliminary processing of applications during the last quarter of 2002. The Authority will then be in a position to authorise those institutions and individuals, and issue licenses, from the beginning of 2003. 

We are currently seeking comments from institutions and their advisers on the licensing criteria and will expect to issue further updates on licensing, and a related paper on the fee structure for the Regulatory Authority, in due course."

LICENSING CRITERIA FOR FINANCIAL INSTITUTIONS

THE POLICY PROPOSALS CONTAINED IN THIS PAPER ARE PROVISIONAL AND SUBJECT TO CONFIRMATION BY THE DIFC REGULATORY AUTHORITY

DUBAI INTERNATIONAL FINANCIAL CENTRE ("DIFC")
INFORMATION PAPER NO. 1
LICENSING CRITERIA FOR FINANCIAL INSTITUTIONS

AN INFORMATION PAPER ADDRESSED TO PARTIES INTERESTED IN THE DEVELOPMENT OF THE DIFC


1. INTRODUCTION - INFORMATION PAPERS PUBLISHED BY THE REGULATORY AUTHORITY

It is the intention of the Regulatory Authority of the DIFC to publish information papers from time to time to enable prospective participants in the DIFC to learn about and comment upon the Authority's regulatory proposals. These papers contain an explanation of the Authority's current thinking on the subject involved; the Authority may determine to adopt in whole or in part the proposals outlined in these papers or may amend the proposals in the light of comments received or developments in the marketplace. Comments on this paper, Information Paper No. 1, should be sent to the Regulatory Authority of the DIFC, marked to the attention of Mr Phillip Thorpe, Chief Commissioner of the Regulatory Authority.

2. TIMETABLE
It is hoped that the DIFC's Regulatory Authority will be in a position to make license application forms available in September 2002 and be able to receive formal applications from October 2002. It is expected that the first applications will be granted by January 2003. It should be noted that the necessary decrees and laws to establish the Regulatory Authority, and to give it the power to grant licenses, are likely to be enacted during the last quarter of 2002.

3. THE APPROACH TO LICENSING
The details of the Authority's licensing regime are still being finalised, but the overall structure, processes and requirements involved are expected to align closely with those found in major financial centres. However, the interest expressed to date has been largely in connection with institutional business and the Regulatory Authority is proceeding on the basis that this will be the primary focus of its activities. Further, and as anticipated, that interest has come from financial institutions already established in other regulated jurisdictions. Accordingly the licensing and supervisory arrangements will be focussed on institutional business, and structured both for institutions wishing to set up new companies or subsidiaries within the DIFC and for those wishing to establish branch operations. Both options are described below.
3.1 New Businesses formed in the DIFC and Subsidiaries incorporated in the DIFC by existing financial institutions (whether in the UAE or elsewhere) 
3.1.1 The incorporation of new businesses within the DIFC and the establishment of subsidiaries in the DIFC by overseas institutions are largely dependent upon the DIFC implementing its own company law. It is expected that the necessary company law, and other related legislation on property rights (including laws on security and collateral, title to goods and securities, commercial transactions and contracts, and insolvency - all to be collectively known as the DIFC Commercial Code) will be completed in the last quarter of 2002. 
3.1.2 The requirements on applicants will be familiar to those institutions operating in major jurisdictions. Applicants will be expected to provide information on, at least, the following:
* The institution's business plan
* The key individuals, major shareholders (above 5%), controllers, and structure, and confirmation of their fitness and propriety
* The operating systems and controls
* The compliance systems, and the internal audit functions
* The anti-money laundering procedures
* The financial position of the institution
* The regulatory history of the institution (it's regulatory track record)
3.1.3 In addition to the application requirements, successful applicants (whether incorporated in the DIFC or branch operations) will be subject to the regulatory legislation, regulations and rules administered by the DIFC Regulatory Authority. For the avoidance of doubt, it is expected that DIFC licensees will not be subject to the laws of the UAE or Dubai where the DIFC has made its own laws. The details of these laws, and the continuing requirements upon licensees will be available later in 2002. Again, it is expected that the continuing requirements will be closely modelled on the regulatory standards and requirements applying in major financial centres. Information Papers on proposals in these areas will be issued in September and October 2002. 
3.1.4 It should also be noted that certain individuals employed by licensed financial institutions incorporated in the DIFC, or institutions established as branch operations, will need to be individually licensed. The types of functions that will require licensing, and the standards that will need to be met by the individuals involved, are described in paragraph 6.4 and 6.5 below. Whilst those descriptions are cast in terms of branch operations, very similar requirements will apply to DIFC incorporated entities.
3.2 Branches established in the DIFC by financial institutions with a primary registration elsewhere
3.2.1 Provided that agreements or arrangements have been reached or are being negotiated with regulators in the appropriate jurisdictions, it is anticipated that the DIFC's Regulatory Authority will be able to move more quickly to license branches of financial institutions that already conduct financial business outside the DIFC. The Regulatory Authority is currently considering the necessary content for these agreements or arrangements (which in their more formal state are known as Memoranda of Understanding, or MoU's) and will establish a priority list of jurisdictions where it will concentrate its efforts to reach agreement at an early stage. The priority list will reflect the jurisdictions most commonly claimed as 'home' by the first wave of applicants.
3.2.2 From the expressions of interest received thus far by the DIFC it is apparent that most potential DIFC licensees (at least in the initial stages of the establishment of the DIFC) will have their primary regulatory license elsewhere. In such circumstances the DIFC Regulatory Authority will look to the lead regulator of such applicants for information on the applicant and its track record, particularly when, for example, the Regulatory Authority is making its assessment of the good standing of an applicant. 
3.2.3 The Regulatory Authority recognises that there may be a variety of backgrounds relating to the branches of financial institutions, and that a more customised approach may be required, depending on the type of activity undertaken, primary jurisdiction, and track record of the institution involved. A description of the main categories that might arise in respect of branch licensing, and the conditions that can expect to be imposed in respect of each category are set out below. 

4. GENERAL LICENSING MATTERS
4.1 As the Regulatory Authority for the DIFC will be a unitary, or "one-stop for everything" regulator, it is intended that financial institutions will be granted an "umbrella" license, covering all financial services business, but with specific permissions being required in order to conduct discrete activities e.g. wholesale banking, asset management, insurance, re-insurance, securities underwriting, broking, dealing, corporate finance advice, investment advice, derivatives trading etc. For the avoidance of doubt, the Regulatory Authority will not grant a license without the applicant having identified at least one specific area of activity for which permission will be necessary.
4.2 The DIFC is keenly aware of the threat posed to financial markets by the activities of money-launderers, and of the wider damage caused by money-laundering facilitating other financial crimes, drug trafficking, and terrorism. The UAE has imposed strong anti-money-laundering laws that the DIFC expects to adopt. In addition, the Regulatory Authority will be issuing regulations on anti-money laundering, requiring, amongst other things, any licensed institution to appoint an appropriately qualified Money Laundering Reporting Officer, and to have procedures and processes in place to prevent account opening by launderers, and to detect suspicious transactions. The Regulatory Authority will only license branches of institutions with headquarters in member countries of the Financial Action Task Force ('FATF') or from a country that is in strict compliance with the FATF standards on money laundering. 

5. BRANCH LICENSING - BY PASSPORTING 
The aim of the branch licensing system will be to reduce the formalities of authorisation for branches of financial institutions where they are already authorised in their home state for the activities they intend to carry out in the DIFC. This is based on the presumption that the Regulatory Authority will be able to rely upon effective home state supervision. It will also be dependent on the acquiescence to, or the non-proscription by the home state regulator to the branch application being made to the Regulatory Authority. 
5.1 To be eligible to be licensed in the passporting category, branches of financial institutions should be subject to regulatory oversight outside the DIFC by appropriate home regulators with whom the Regulatory Authority has concluded or expects to conclude a satisfactory regulator-to-regulator MoU, or some equivalent arrangement. It is expected that this will likely include the UAE Central Bank, and banking, insurance and financial services regulators in the US, UK, other EEA countries, Canada, Japan, Hong Kong, Singapore and Australia (collectively referred to as "Tier 1 Regulators" for the purposes of this Information Paper).
5.2 It is hoped that the Tier 1 Regulators will be prepared to co-operate with the Regulatory Authority, and that the resulting MoU's or arrangements will set out general principles relating to the sharing of information about financial institutions, including both regulatory and commercial information, and this may extend to providing for mutual enforcement actions.
5.3 In addition, any such arrangements will clearly need to address the division of regulatory responsibilities between the Tier 1 Regulator and the Regulatory Authority. For example, it is likely that the Tier 1 Regulator will be broadly responsible for prudential matters, including adequacy of capital and adequacy of financial records, systems and controls. Responsibility for the conduct of business (and such 'conduct of business' rules as may be required) from within the DIFC location of the DIFC licensee would be by the Regulatory Authority. The arrangements with the Tier 1 Regulator will also need to provide for co-operation concerning investigations and disputes, and should address which regulator should take the lead in these matters. 

 

6. ADDITIONAL REQUIREMENTS FOR BRANCH LICENSEES

6.1 As noted above, the Regulatory Authority will seek confirmation from a Tier 1 Regulator or from any other lead regulator that the regulator in question has consented to, or not proscribed, the DIFC applicant establishing a branch in the DIFC. This confirmation will need to identify the activities to which the consent relates, and contain information about the branch and the financial institution, including a statement confirming the activities that the financial institution carries on in its home state, the amount of its own funds (regulatory capital) and solvency ratio and the fact that the financial institution's business is being conducted in a prudent manner.

6.2 The Regulatory Authority will also have the discretion to impose additional capital adequacy and/or solvency requirements on branches as a pre-condition (and, for so long as is judged to be necessary, a continuing obligation) to being licensed, where it is considered to be appropriate. The Regulatory Authority may wish to exercise this discretion, for instance where the applicant is licensed as an advisor not able to hold client funds in its home jurisdiction, and where it is seeking to undertake a business where it will hold client funds in its DIFC branch. The Regulatory Authority may also impose conditions on branches relating to adequacy of day-to-day liquidity, but will consider whether a comfort letter from a branch's head office in relation to maintaining the branch's liquidity is adequate.

6.3 Whilst the applicant institutions' financial systems and controls may be subject to the regulatory oversight of the institution's home regulator, the Regulatory Authority may wish to impose conditions relating to the establishment of systems and controls appropriate to the activities carried out by the DIFC branch. 

6.4 The Regulatory Authority will require branches of financial institutions to appoint individuals to carry out specified functions on the branches' behalf and those individuals will need to be individually licensed. The specified functions are likely to include:

(i) Branch manager function. A person will be carrying out this function if he or she has responsibility for all of the activities of the DIFC branch subject to regulatory oversight of the Regulatory Authority, and in carrying out this function exercises a significant influence over the branch. This may be a person located outside the DIFC if they have not delegated the responsibility to a senior manager based at the branch in the DIFC;

(ii) Compliance oversight function. This function must be carried out by a senior manager based at the branch having responsibility for oversight of the branches' compliance and reporting to the governing body of the financial institution;
(iii) Money laundering reporting officer function. A branch must appoint a money laundering reporting officer based at the branch;

(iv) Significant management function (regulated activity function). A person will be carrying out this function if a financial institution has apportioned significant responsibility to a senior manager of a significant business unit relevant to the activities carried on by the DIFC branch, and this function is not carried out by the person performing the branch manager function. This may be someone based outside the DIFC if the responsibility has not been delegated to someone based at the branch;

(v) Significant management function (settlements function). A person will be carrying out this function if they are acting in the capacity of a senior manager with significant responsibility for processing confirmations, payments, settlements, and other back office functions in relation to activities carried out by the DIFC branch;

(vi) Significant management function (solvency). A person will be carrying out this function if they are acting in the capacity of an actuary with responsibility for certifying the financial solvency of insurance or re-insurance activities underwritten by the DIFC branch.

(vii) Customer relation's function. These are functions where the persons concerned will be dealing with customers or customers' property when giving advice on policies, investments or other financial products, dealing and arranging deals in such products, and managing investments (a full explanation of the scope of the financial activities and products to be subject to Regulatory Authority oversight will be available in due course);

(viii) DIFC systems and controls oversight function. This is the function of an individual who is responsible for overseeing risk management, and the establishment and maintenance of systems and controls in relation to activities carried on from the DIFC branch.

6.5 When considering whether to grant a license to an individual to carry out a specified function, the Regulatory Authority will assess the fitness and propriety of an individual for that specified function. The Regulatory Authority will have regard to a number of factors when making this assessment, taking into account a range of factors, including the individual's:

(i) honesty, integrity and reputation (e.g. taking into account whether an individual has convictions for criminal offences, including offences relating to dishonesty, fraud or financial crime, or has been the subject of regulatory disciplinary action);

(ii) competence and capability (e.g. whether an individual has demonstrated by experience and training whether he/she will be able to perform the specified function)

(iii) financial soundness (e.g. whether the person has made any arrangements with his creditors, filed for bankruptcy, been adjudged bankrupt).

7. BRANCH LICENSING - BY ACCREDITATION 

7.1 As discussed above, the passporting system is premised on the applicant being regulated by a Tier 1 Regulator. From the expressions of interest received by the DIFC to date it is likely to be the case that not all financial institutions will be lead regulated by a Tier 1 Regulator. However, it is possible that such an institution might have a branch that is regulated by a Tier 1 regulator. In its discretion, the Regulatory Authority may be prepared to treat such an institution as able to establish a branch in DIFC as well. The appropriate requirements set out in paragraph 3.1.2 above will apply. 

7.2 The rationale behind the accreditation category is that if a Tier 1 Regulator has permitted a financial institution to establish a branch in its jurisdiction, then the Regulatory Authority should consider the extent to which it can give credit for this when considering licensing a similar business as a DIFC branch.

7.3 The extent to which the Regulatory Authority will be prepared to grant a license on this basis will need to be determined, on a case-by-case basis, and the Regulatory Authority will reserve the power to grant a license in the accreditation category on a purely discretionary basis only. In any event, the Regulatory Authority may be expected to publish some guidance on the factors it will take into account in determining whether to exercise its discretion. For example, factors of relevance might include the number of years it has operated a branch in a Tier 1 jurisdiction, its track record in that jurisdiction, and the level and type of regulatory oversight exercised by the applicant's home regulator. 

7.4 In each case, the Regulatory Authority will need to understand the basis on which a Tier 1 Regulator licensed a branch of such a financial institution, to assess whether it is consistent with the Regulatory Authority requirements. The Regulatory Authority will therefore seek to obtain as much information as possible about the conditions (if any) that a Tier 1 Regulator has imposed, and the information that it took into account when licensing a branch of such a financial institution. Ideally, this information should include the terms of the MoU which the Tier 1 Regulator entered into (if any) with the home state regulator of the financial institution, as this may have had an effect on the licensing conditions imposed by the Tier 1 Regulator on the branch within its jurisdiction. Once the Regulatory Authority has gathered and considered such information, it will assess whether it can, in the circumstances, grant a license and the conditions that it wishes to impose. For example, the Regulatory Authority may decide that with a financial institution that is not lead regulated by a Tier 1 Regulator but is nevertheless satisfactorily lead regulated in its home state, and has one or more branches subject to oversight by one or more Tier 1 Regulators (e.g., it has branches in London and New York), it will grant a license to a DIFC branch of that institution on the same conditions as a passported branch of a Tier 1 lead regulated institution, but with some additional requirements as to capital and prudential supervision.

7.5 In any event, in addition to any particular conditions that the Regulatory Authority might impose on a DIFC branch as to the terms of its accreditation, such a branch will need to comply with the requirements described in sections 4 and 5 above.

8. BRANCH LICENSING -OTHER CIRCUMSTANCES

8.1 The Regulatory Authority recognises that there may be institutions that wish to establish a branch in the DIFC, but that do not qualify under either of the categories described above. For example, there may be no acceptable MoU or equivalent arrangement with a home state regulator, or the financial institution in question has not established a similar branch under the oversight of a Tier 1 Regulator.

8.2 In these circumstances, and in order to ensure effective regulatory oversight of the branch, the Regulatory Authority may contemplate, in its absolute discretion, nevertheless to license the institution, but it will seek to impose the full licensing conditions on the branch and the financial institution as if the Regulatory Authority were the institution's lead regulator. These conditions would include the conditions imposed on passported firms discussed above and in addition the full range of financial, prudential and other requirements described in respect of new DIFC businesses or subsidiaries 

9. THE APPLICATION PROCESS

9.1 As noted above, it is expected that further and more specific information on the application process and requirements will be available in September, as will application forms. The Regulatory Authority expects to work towards achieving a rapid turnaround of applications, to allow the first licenses to be granted by January 2003. Experience elsewhere indicates that the principal causes of delay in the regulatory licensing process can often be traced to the applicant failing to provide required information, or the provision of information that requires clarification or additional explanatory material.

9.2 The DIFC and the Regulatory Authority will expect to work with applicants to ensure that any application delivered to the Authority is in a complete and processable form. Applicants should raise any questions they have with the DIFC or the Authority as soon as possible in the process to minimise the potential for delay. The Regulatory Authority expects applicants to be open and frank in its dealings with the Authority, and applicants should expect the same approach from the Authority in its dealings with them.

10. FURTHER PAPERS

10.1 The Regulatory Authority may determine to issue further versions of this Information Paper, as the legislation and regulations of the DIFC are developed. It is also expected that other papers on related matters will be issued in due course. A paper on the Authority's proposed fee structure will be issued in the last quarter of 2002.

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