The Authority s Board of Directors Decision No. (1) of Concerning the Regulation for Investment Management

Transcription

1 The Authority s Board of Directors Decision No. (1) of 2014 Concerning the Regulation for Investment Management The Chairman of the Board of Directors of the Securities and Commodities Authority, Having considered Federal Law No (10) of 1980 concerning the Central Bank, Monetary System and Regulation of Banking Profession, as amended; Federal Law No (8) of 1984 concerning Commercial Companies, as amended; Federal Law No (5) of 1985 concerning the Issuance of the Civil Transactions Law of the United Arab Emirates, as amended; Federal Law No (4) of 2000 concerning the Emirates Securities and Commodities Authority and Market, as amended; Federal Decree No (32) of 2013 concerning the Composition of the Council of Ministers of the United Arab Emirates; Council of Ministers Resolution No (13) of 2000 concerning the Internal By-Law of the Securities and Commodities Authority, as amended; Council of Ministers Resolution No (108/7 and /5) of 2010 concerning on the of Restructuring the Board of Directors of the Securities and Commodities Authority; Resolution No (164/8/94) issued by Emirates Central Bank concerning the Regulation for Financial Investment Companies, and Investment, Financial and Banking Consulting Companies and Institutions, as amended; The Authority's Board of Directors' Decision No (1) of 2000 concerning the Regulation for Brokers, as amended; The Authority's Board of Directors' Decision No (3) of 2000 concerning the Regulation for Disclosure and Transparency; The Authority's Board of Directors' Decision No (37) of 2012 concerning the Regulation for Mutual Funds; and The approval of the Board of Directors at its Twenty-First Meeting of the Fourth Session convened on 26/12/2013, Has decided:

2 Article (1) Definitions The following words and expressions shall have the meanings assigned thereto hereunder, unless the context indicates otherwise: State: Law: Central Bank: Authority: Board: Mutual Fund: Securities Portfolio: Investment Management: Investment Manager: Investment Committee: United Arab Emirates. Federal Law No. (4) of 2000 concerning the Emirates Securities and Commodities Authority and Market, as amended. Central Bank of the United Arab Emirates. The Securities and Commodities Authority. The Board of Directors of the Authority. A financial vehicle engaged in the activity of collecting Investors' savings for the purpose of investment against the issue of investment units of equal value and rights. Securities owned by the investor and managed by the Investment Manager on behalf of the investor by virtue of an agreement signed therewith. Management of Securities Portfolios for the account of third parties or the management of Mutual Funds in accordance with investment objectives and policy defined in the investment management agreement signed between the Investment Manager and its clients including individuals, institutions or Mutual Funds. The corporate person licensed to practice the activity of Investment Management in accordance with the provisions of this Regulation. A competent committee, at the Investment Manager, to plan for the implementation of an investment policy to manage the investment and follow up on and monitor actual performance.

3 Chapter One: Licensing Article (2) 1. The investment management activity may only be carried out in the State after obtaining a license from the Authority in accordance with the provisions of this Regulation. 2. Except for the promotion of financial portfolios owned by federal and local governmental entities, Investment Management activity may not be promoted within the State except by persons authorized by the Authority to engage in such activity. Licensing Conditions Article (3) First: To obtain a license to carry out an Investment Management activity the following conditions must be satisfied: 1. The applicant requesting a license must be a corporate person in one of the following forms: a. A shareholding company established in the State in accordance with the provisions of the Commercial Companies Law with the purpose of conducting an Investment Management activity. b. A shareholding company established in the State in accordance with the provisions of the Commercial Companies Law, one of its activities is to carry out an Investment Management activity and has a license to operate in the securities field in accordance with the controls issued by the Authority concerning the prevention of conflicts between activities. c. A local bank or a branch of a foreign bank or an investment company licensed by the Central Bank, provided that the Central Bank does not object to the performance of such activity in any of these cases. d. A branch of a company established in a financial free zone in the State or a branch of a foreign company, provided that such branch is licensed to conduct such activity in the relevant financial free zone or the mother state and that is governed by a counterpart supervisory authority, as well as any other terms or conditions determined by the Authority. 2. The paid up capital must not be less than AED (5,000,000) five million, with the exception of local banks and branches of foreign banks. 3. To submit an unconditional and irrevocable bank guarantee, payable upon request in favour of the Authority by a bank operating in the State, with a value of (1,000,000) one million Dirham, in order to guarantee its obligations to the Authority or those obligations

4 arising from the activity. The bank guarantee shall not be cancelled without the approval of the Authority. 4. To pay the licensing fees as specified by the Authority. 5. To appoint technical and administrative staff required to perform the activity in accordance with the measures issued by the Authority concerning the activity requirements and the adoption of certain roles. 6. To provide an adequate premises and the required electronic programs and technical systems for the performance of the activity to ensure its ability to perform its duties and tasks as set by this Regulation. 7. To provide an internal control system which guarantees appropriate compliance with the Law, regulations and resolutions issued pursuant thereto, as well as internal by-laws applicable within the markets, in a manner that guarantees that the activity is conducted efficiently, honestly and fairly. 8. To provide an operational guide for risk management which includes the enumeration and definition of specific current or potential risks that could face the company as well as how to address them in case of occurrence; monitor such risks and report them in such a manner that enables the company to maintain the performance of its activity and continue to comply with the provisions of this Regulation. 9. Any additional conditions or requirements determined by the Authority to serve the public interest. Second: An applicant requesting a license may submit an undertaking to fulfill, within a specific period determined by the Authority, the conditions mentioned in paragraphs 5 to 8 of the First item of this Article after the applicant obtains the approval for his request or otherwise the Authority s approval shall be considered void. Third: The Investment Manager must meet, at all times, all licensing conditions. Technical and Administrative Staff Article (4) 1. The technical and administrative staff of the Investment Manager must satisfy the following conditions: a. Be a natural person with full legal capacity. b. Exhibit good conduct and have a good reputation and have not been previously imprisoned for a crime involving dishonesty or a breach of trust unless rehabilitated. c. Must be capable of paying his commercial debts regardless of whether or not a declaration of bankruptcy was made against him. Additionally that he was not previously declared bankrupt unless exonerated.

5 2. It is prohibited to engage in two registered functions simultaneously. 3. Any of the Investment Manager's accredited employees may transfer to work with another Investment Manager after notifying the Authority. License Application Article (5) 1. The license application to conduct Investment Management activity must be submitted to the Authority on the form prescribed for this purpose together with supporting information, data and documents, in particular: a. The legal form of the applicant together with a report shows the names of the board of directors and executive management. b. Investment management agreement form. c. A statement of any obligations or legal or judicial responsibilities relating to the applicant. d. A statement showing the names of the manager, internal controller, and the persons responsible for the provision of Investment Management activity, together with a job description for each of them. e. A statement showing the used technical systems and the suggested work procedures for the provision of the Investment Management activity. f. A receipt indicating the payment of the license fees of (50,000) Dirhams. 2. The Authority may request any additional clarifications, information or documents. 3. The Authority shall issue a decision to approve or reject an application within 30 days from the date a complete application was submitted. If the Authority does not issue a decision within such period, the application shall be considered rejected. A new application may not be submitted before a period of six months following the rejection of the first application or being considered as rejected. 4. The Authority may provide a conditional approval subject to the conditions and restrictions deemed convenient to preserve the public interest. Licensing Duration and Renewal Article (6) 1. The term of the license shall be one year, expiring at the end of December. However the term of the first license starts on the date such license is granted until the end of December of the same year. The fee due on such license shall be charged as a proportion of the fees due for the license period for the year, with any part of a month calculated as a full month.

6 2. The license shall be renewed by an application submitted to the Authority one month prior the end of the license period at least, after ensuring that the Investment Manager is still compliant with the provisions of this Regulation and that the annual license renewal fees of (25,000) Dirhams are paid. The Authority's Chief Executive Officer may suspend the Investment Manager from conducting its business if a completed application to renew its license has not been submitted within the specified period. Investment Manager's Branches Article (7) The Investment Manager may establish branches inside the State after obtaining a prior approval from the Authority in accordance with the conditions and terms issued in this regard. License Cancellation upon the Investment Manager's Request Article (8) The Investment Manager that wishes to completely suspend the practice of Investment Management activity shall submit a request to the Authority for that matter, and fulfill its obligations to the Authority and its clients according to the procedures determined by the Authority. The revocation decision shall be issued by the Authority and published in two daily newspapers issued in the State with at least one in the Arabic Language at the Investment Manager s expense. Chapter Two: Investment Manager's Obligations Investment Manager's Internal Organization Requirements Article (9) First: The Investment Manager must make all the necessary administrative and technical procedures to engage in the licensed activity in accordance with the provisions herein, in particular: 1. Form an Investment Committee responsible for the planning of investment policy implementation to manage investments as well as follow up and monitor actual performance including periodic reviews, at least twice a year, of the terms and procedures necessary for the practice of the activity which are applicable at the Investment Manager and to ensure the existence of appropriate operational methods to guarantee that the practice of the activity has been carried out in accordance with the provisions herein.

7 2. Review the internal control system and the operational guide for risk management and update it regularly in accordance with the nature of the company s operations. 3. Set internal regulations including sound administrative and accounting procedures in addition to efficient arrangements to control and preserve systems specific to the processing of information and full compliance with applicable regulations in the State concerning money laundering procedures and terrorism funding. 4. Set code of conduct for its employees and supervise them, and monitor their personal dealings in securities to ensure compliance with the provisions of the Law, regulations and decisions issued by the Authority, in particular those relating to the integrity, honesty and conflict of interests. 5. Set necessary rules to regulate employees' purchase and sale of Fund Units issued by Funds under the management thereof. 6. Adopt a mechanism to document all the information, data, documents and records specific and relating to the practice of the activity, and to maintain them for a period of not less than (10) years, in addition to keeping backup copies of such data during the same period. 7. Enable the internal controller to perform his duties, particularly the following: a. Ensure the compliance of the Investment Manager and employees thereof with the provisions of the Law, regulations and resolutions issued pursuant thereto as well as the policies, rules, procedures and internal regulations. b. Ensure that there is no conflict of interests between the Investment Manager and its clients, or among clients. c. Ensure complete separation between the management of securities portfolio and Mutual Funds management in the event that the two are combined, in accordance with the terms determined by the Authority. d. Notify the Authority of any violation of the Law, regulations, resolutions or terms issued in this regard. 8. The internal controller may only be dismissed by a decision of the board of directors of the company provided that the Authority and the internal controller are notified in writing at least (30) days prior to his dismissal clarifying the reasons and justifications thereto. Second: The internal controller shall submit a report on the Investment Manager's activities to the Investment Committee every three months and provide the Authority with a copy thereof. Third: The Investment Committee shall ensure that the performance of the internal controller s assignments are duly facilitated, and that controller can review all the records kept with the Investment Manager and monitor the employees' dealings in securities.

8 The Investment Manager's Obligations concerning the Investment under its Management Article (10) In addition to any other obligations stipulated in the Regulation for Mutual Funds concerning the mutual funds or in the law and regulations of the Authority, the Investment Manager shall comply, in terms of the investment under its management within the Securities Portfolio or Mutual Fund, with the following: 1. To enter into an investment management agreement with every client for whom the Investment Manager manages investments, where it shall state particularly all the data and information requested below or any other data or information requested by the Authority: a. Definition of the Investment Management activity according to the provisions of this Regulation. b. All the data related to its client and his authorized representatives in addition to the relevant contact details. c. A detailed statement of the client s investment policy and all details related to it as well as the conditions under which the investment is managed; a statement clarifying the risks linked to the investment and clearly defining the decision making authority for investment specific matters, provided that such statements do not violate any of the regulations issued by the Authority. d. Define the mechanism and procedures to be adopted in order to implement the "Know your client" principle. e. Types and details of reports to be provided to clients. f. A detailed statement of all the rights and obligations relevant to the Investment Manager and its clients thereof. g. Fees and charges payable by clients against the provision of Investment Management service thereto. h. Define the proposed mechanism to solve disputes that may arise between the Investment Manager and its clients. i. Conditions for the termination of the agreement. 2. Seek to achieve the investment objectives of clients. 3. Comply with the principles of honesty and integrity when practicing the activity, seek to fulfill clients' interests in the best possible way, refrain from promoting self or others' interests ahead of the clients', and abstain from any discrimination among clients, treat them equally and adopt the relevant rules and regulations to ensure compliance with the same. 4. Ensure no conflict of interest with clients for whom the Investment Manager is managing funds or among clients themselves, and immediately notify the concerned clients in writing whenever an existing or potential conflict of interest arises and inform the Authority of those interests relating to the Mutual Fund.

9 5. Disclose to the client all the data and information relating to the evaluation of the investment thereof, provided that the same is done in an easy and clear manner in accordance with the nature of the client. 6. Set the necessary procedures to ensure full separation between the Investment Manager's own accounts and its clients' accounts, as well as the separation among clients' accounts. 7. Receive no funds or assets directly or indirectly from clients provided that managed assets are deposited in an account with a custodian licensed by the Authority or a custodian licensed outside the State if the clients' investments are outside the State. 8. Protect the funds and assets of clients and refrain from exploiting them for purposes other than clients interest, or in a manner that contradicts their investment objectives. 9. Provide a level of liquidity in accordance with the nature of the investment managed in order to face risks and obligations related thereto. 10. Preserve the confidentiality of the data and information pertaining to clients' investments and refrain from disclosing such material to other than competent authorities or upon written approval by client. 11. Refrain from using investment data specific to clients in order to achieve benefits or interests that do not serve the client concerned. 12. Maintain the records necessary to practice the activity and organize all data specific to clients' accounts in appropriate manner. 13. Provide the client with a monthly report unless the agreement concluded between them stipulates a shorter period, the report shall include the following data as a minimum: a. Statement of the investment portfolio components. b. Volume of deals made in the portfolio account. c. Investment portfolio evaluation. d. Incoming and outgoing amounts to/from the portfolio accounts. e. Statement of changes in the portfolio. f. Salaries payable by the client to the Investment Manager. g. Any material event that may affect the risks expected by the Investment Manager. 14. Make all possible efforts to study the financial position of the companies and assets in which the Investment Manager invests the client's funds under its management, and ensure that investments are diversified in order to minimize investment risks in line with the investment policy, and that the Investment Manager shall not use such funds to affect securities prices in the market. 15. Ensure the best execution for the client, and observe temporal distribution of sale and purchase operations and the distribution on brokerage firms in the market in which the Investment Manager operates, provided that it refrains from being biased to some brokerage firms in such a manner that would achieve private gains to him or harm the client's rights, and operations shall not be aimed at increasing the commissions, fees or expenses of third parties.

10 The Investment Manager's Obligations before the Authority Article (11) In addition to any other obligations stipulated in the Regulation for Mutual Funds concerning Mutual Funds or the Law and regulations of the Authority, the Investment Manager commits to the following before the Authority: 1. Preserve the necessary solvency to practice its activity continuously to such an extent that allows it to meet its obligations according to the standards issued by the Authority in this regard. 2. Provide the Authority with the following reports: a. Periodic financial reports (quarterly and semi-annual) reviewed by the external auditor of the company within (45) days from the end of the specific period, signed by the chairman of the board or by an authorized signatory on his behalf if the Investment Manager is a company only established to practice Investment Management. b. Annual financial statements audited by the external auditor of the company within (90) days from the end of the financial year, signed by the chairman of the board or by an authorized signatory on his behalf if the Investment Manager is a company only established to practice Investment Management. c. Periodic reports or reports upon request for the separation of accounts. d. Periodic reports about the company s activities include the volume of funds managed with the knowledge of the company as well as the number, names and volume of investments and company clients' transactions in addition to money turnover and the statement of the distribution of funds managed on different investment tools and markets. e. Periodic reports on the distribution of the company transactions with service providers dealt with include brokerage firms, banks and the parties offering the service of custody for the assets managed with the knowledge of the company. f. Any other financial statements and reports requested by the Authority. 3. Obtain the Authority's prior approval before taking any of the following actions: a. Add, delete or amend an activity on the trade license. b. Amend the memorandum or articles of association of the Company. c. Increase or decrease the capital of the company. d. Conclude merger or acquisition operations. e. Change the address of headquarter or branch offices of the company. f. Change the partners or adjust their shareholdings in the company, with the exception of public shareholding companies. g. Launch any advertising campaigns to promote its services. 4. Notify the Authority immediately with the following:

11 a. Any substantial changes or developments in the Investment Manager's activity, or any failure that would affect its financial position. b. The termination of services of any person responsible for a key role in the management of the portfolio, in particular the portfolio or fund manager. c. Any amendments to the information or data submitted in the application for license. d. Any violations by its employees to the laws, regulations, rules or resolutions applicable within the Authority. 5. Maintain at all times records, documents, accounts and financial statements which show its financial position and its clients as well as the agreements of dealings. 6. Comply with all the rules, procedures and regulatory requirements approved by the Authority concerning internal audit and internal auditors' tasks. 7. Conduct the activity licensed thereto with the care of a prudent professional person in accordance with the provisions of the Law and the regulations issued in implementation thereof as well as with the conditions and controls by virtue of which the license was issued, comply with the business norms in this matter as well as integrity, justice and equality principles, and ensure clients' interests are met. Investment Manager's Tasks Delegation Article (12) The Investment Manager may delegate some of its duties to another licensed Investment Manager in accordance with the following controls: 1. Receive the prior written approval of the client on the Investment Manager's right to delegate some of its duties. 2. Notify the client of the following: a. Name of authorized Investment Manager, reasons of delegation and details related thereto. b. Termination of the delegation by the Investment Manager in the event that it is not in the best interest of the client, and alternate procedures to be taken. c. Any conflict of interests between the client and any of the delegated Investment Manager's clients. 3. The continuation of the delegating Investment Manager responsibility before the Authority and the client concerning its obligations relating to the performance of its duties in accordance with the provisions of this Regulation.

12 Chapter 3: Oversight, Inspection and Sanctions Oversight and Inspection Article (13) The Authority may, without any prior notice, conduct periodic inspections over a licensed Investment Manager in order to ensure its compliance with the Authority s laws and regulations, and the Authority may investigate any violations that appear as a result of the inspection or in claims received by the Authority. The Authority may for the supervision and investigation purposes request all the information and documents it deems necessary from the Investment Managers, their employees or clients. Practice of Activity outside the State Article (14) The Investment Manager may practice its activity outside the State if permitted to do so by the laws and competent authorities outside the State- without any liability whatsoever on the Authority- in accordance with the following conditions: 1. Obtain a non-objection letter from the Authority on the same. 2. Ensure no conflict of interest between the Investment Manager and its clients or among clients inside or outside the State. Violations and Sanctions Article (15) First: In the event that the Investment Manager breaches the provisions of the Law, regulations or controls issued pursuant thereto, the Authority may impose one of the following sanctions: 1. A warning to the Investment Manager and an order to correct the violation within the period specified by the Authority. 2. A monetary fine of no more than the maximum limit provided for in the Law and the regulations issued pursuant thereto. 3. Suspend the Investment Manager from practicing the activity for a period not exceeding one year. Second: The Authority may revoke the license of an Investment Manager in any of the following events: 1. Loss of any condition of the licensing conditions stipulated in this Regulation.

13 2. Serious breach of any of the obligations or duties provided for in this Regulation. 3. Failure to pay the annual license renewal fee or the imposed fines. 4. The issuance of a final court judgment declaring the bankrupt of the licensed company as an Investment Manager. 5. The winding up or liquidation of the licensed company as an Investment Manager. The revocation decision to the license shall be published in two daily newspapers issued in the State with at least one in the Arabic Language at the Investment Manager s expense. Third: In the event that the Investment Manager's accredited employees breach the Law, Regulations, resolutions or controls issued pursuant thereto, the Authority may impose one of the following sanctions: 1. A warning. 2. A suspension for a period of no more than two months. 3. Revocation of the approval. Status Adjustment Article (16) Companies and parties which practice Management Investment activity before the issuance of this Decision shall adjust their status in accordance with the provisions thereof within a period not exceeding one year from the date of its publication in the Official Gazette. Effectiveness Article (17) This Decision shall be published in the Official Gazette and shall come into effect on the day following the date of its publication. Engineer / Sultan Bin Saeed Al Mansouri Chairman of the Board of Directors Issued in Abu Dhabi on 13/1/2014