The DFSA and the UAE Insurance Authority combine forces to take action against non-compliant players
The recently publicised enforcement action taken by the Dubai Financial Services Authority (DFSA) with the assistance of the UAE Insurance Authority (IA) against Clements (Dubai) Limited (CDL), a Dubai International Financial Centre (DIFC) entity, demonstrates the extent of collaboration between the two regulators in the UAE.
The recently publicised enforcement action taken by the Dubai Financial Services Authority (DFSA) with the assistance of the UAE Insurance Authority (IA) against Clements (Dubai) Limited (CDL), a Dubai International Financial Centre (DIFC) entity, demonstrates the extent of collaboration between the two regulators in the UAE. It also shows that the regulators are prepared to enforce laws and regulations against companies that do not comply.
This is good news for compliant players within the industry. It will also silence some of the critics that have focused on the perceived lack of willingness of the regulators to enforce applicable laws. The enforcement action marks a degree of change and possibly a move towards levelling the playing field for those who abide by the rules. The enforcement action resulted in CDL receiving a penalty of USD 85,000 (USD17,191.00 for disgorgement of benefits and USD 68,000 penalty). It should be noted that CDL were given a reduction in the penalty because the firm self-reported the breach.
During its investigation of CDL’s report, and with the assistance of the IA, the DFSA discovered that between 8 January 2014 and July 8 2014, CDL arranged 21 contracts of insurance in which the risk was situated in the UAE and outside the DIFC. By entering into these contracts CDL was in breach of DFSA rules (specifically, Rule 7.2.2(b) of the Conduct of Business Module of the DFSA Rulebook (COB)), which prohibit a DFSA regulated insurance intermediary, situated in the DIFC, from acting in relation to a contract of insurance for a risk situated elsewhere in the UAE. The DFSA also found that CDL “operated its business in such a way that allowed prohibited Insurance Intermediation activities to occur and failed to have in place adequate systems and controls to detect, monitor and prevent such Insurance Intermediation activities from occurring”. In addition, by failing to classify its customers, provide key information and enter into Client Agreements, the DFSA found that CDL failed to comply with a number of the Anti-Money Laundering, Counter-Terrorist Financing and Sanction, Modules of the DFSA Rule book. This amounted to a breach of the Principles for Authorised Firms, notably Principle 2 (which requires the Authorised Firm to act with “due skill, care and diligence”)’ and Principle 3 (which requires an Authorised Firm to “ensure its affairs are managed effectively and responsibly by senior management” and that it has “adequate systems and controls to ensure, as far as is reasonably practical, that it complies with legislation applicable in the DIFC” .1
In light of this enforcement action taken by the DFSA, firms operating from the DIFC and regulated by the DFSA should ensure that they have adequate and comprehensive compliance systems in place. Such compliance systems should make sure that employees are aware of the rules and regulations by which they are governed. Firms should carry out regular audits of their compliance function, which should also include proper oversight of any outsourced compliance arrangements through their respective service provider. Furthermore, compliance monitoring should be conducted on a regular basis, to enforce strict adherence to applicable legal and regulatory requirements. As this case illustrates, the DFSA and the IA will combine to take action against regulatory offenders, with potential consequences for the offender in terms of remediation costs and reputational damage.
1 See section 4.2 “The Principles for Authorised Firms” of The DFSA Rulebook General Module (Gen)