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UAE Securities And Commodities Authority’s Board Approves Proposed Mechanism To Calculate Adequacy Standards For Management Companies And Investment Managers

Date 13/05/2019

  • Studying regulating the transfer of jurisdiction over financial and monetary intermediaries to SCA in coordination with the UAE Central Bank
  • Examining a report about the financial analysis of listed companies and ADX’s and DFM’s sectors for 2018

The board of the Securities and Commodities Authority (SCA) held its ninth meeting, chaired by H.E. Eng. Sultan bin Saeed Al Mansoori, Minister of Economy and Board Chairman, at SCA’s Dubai office. The meeting discussed a number of initiatives aimed at the development of securities-related financial services in line with the best international standards and practices. The meeting dealt with a number of important matters relating to the securities sector, including:

Adequacy standards for management companies and investment managers
The board approved a study on the adequacy standards for management companies and investment managers and gave companies a grace period for compliance. The adequacy standards regulations comprise nine articles outlining the scope of application, capital adequacy, credit risk, operational risk, market risks (managed assets), risk management and control, penalties, compliance, and term.

In its eighth meeting held on March, the board instructed that a study be conducted about the extent of compliance of licensed management companies and investment managers with the adequacy standards and the costs that they will bear if the proposed standards are implemented. The study showed that there are no binding provisions on adequacy standards up until now and no additional fees will be imposed on management companies and investment managers as a result of the implementation of the proposed standards.

The study stated that the purpose of developing adequacy standards for management companies and investment managers is to protect investor assets and to promote the stability of the financial system by supervising systemic risks on the corporate level, which is a key requirement by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO). The proposed regulations seek to complement existing regulations as Article 26(22) of the SCA Board Chairman’s Decision No. (9/Chairman) of 2016 concerning Mutual Fund Regulations states that the management company shall: “maintain the solvency required to practice the business to ensure its stability and meet its obligations as per the relevant criteria issued by the Authority”.

As part of SCA’s efforts to improve the country’s financial sector, the board examined a study by SCA’s management concerning regulating the issuance of asset-backed securities (securitization), which are the processes by which the originator sells and transfers individual and pooled assets to a special purpose vehicle, or SPV, which typically takes the form of a limited liability company that issues tradable securities backed by these assets. The board issued a directive concerning coordination with the competent authorities to amend the relevant legislation in a manner that allows the issuance of regulations relating to such products.

The transfer of jurisdiction over financial and monetary intermediaries to SCA

The board also ordered the conduction of a study on regulating the transfer of jurisdiction over financial and monetary intermediaries to SCA and another study on regulating the business of these intermediaries in coordination with the UAE Central Bank. This will be done through an action plan that enables these intermediaries to come underSCA’s jurisdiction following the provision of the proper legal cover, while studying the consequences of regulating and supervising these companies. 

Report on the financial analysis of listed and brokerage companies

To follow up on the conditions of local listed public joint-stock companies to ensure their financial stability and to implement Federal Law No. (2) of 2015 concerning Commercial Companies, the board reviewed a report on the financial analysis of listed public joint-stock companies and the sectors at the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM).

The board also reviewed a report on the financial analysis of ADX’s and DFM’s licensed financial brokerage companies, which have disclosed their 2018 financial statements.

SCA’s relation with associated parties

The board reviewed a report on SCA’s relation with associated parties most notably the Prime Minister’s Office, the UAE Central Bank, Ministry of Economy, Ministry of Finance, Ministry of Justice, Ministry of Interior, the Federal Competitiveness and Statistics Authority, the Federal Authority for Government Human Resources, economic development departments, ADX, DFM, the Dubai Gold and Commodities Exchange, brokerage companies, the Dubai Financial Services Authority, the Abu Dhabi Global Market, educational institutions, IOSCO, and the other regional and international bodies, including counterparts.