In a “senior executive officers” letter sent on 18 but published yesterday, the DFSA said it had completed a sample review of 14 firms, representing nearly 5% of the total authorised firms operating from the Dubai International Finance Centre, in the first half of 2012.
The letter’s author, Bryan Stirewalt, managing director of supervision at the DFSA, highlights the main issues found by the review – a review which he said produced overall findings which were positive.
Stirewalt said the review looked at four main categories: professional client definition, suitability limits and waivers, client agreements and anti-money laundering processes.
For each section of the review, the DFSA gave an overview of the findings – below is a summary.
Professional client definition
The professional client definition was tested extensively during the theme review visits. The majority of the firms visited dealt with Professional Clients only. Most firms rely on relationship managers/investment advisers to classify their clients, and most of the client files contained extensive narratives on clients’ backgrounds. However, there was not always sufficient evidence on file to support the relationship manager’s/investment adviser’s narratives, in particular to justify the financial knowledge and experience requirement or self-certification by clients.
Suitability limits and waivers
The DFSA was pleased to see from the review that where clients had opted to limit/waive suitability there was no evidence of coercion or “leading the client”. In instances where the firm limits/waives suitability, firms are expected to ensure no advice is given and comprehensive sampling from either compliance monitoring or from internal audit is done on a periodical basis.
Client agreements
Overall, the client agreements in place were of good quality. However, there were some cases where these agreements did not meet the COB requirements and other instances where agreements were not evident on local file. This, in part, reflects the international nature of finance and the use of booking centres elsewhere. However, where a financial service is carried out in or from the DIFC; the firm is expected to have a client agreement in place locally.
AML issues
This review was not a comprehensive look at customer due diligence or know your customer principles however, we did include certain aspects of our AML Rules in the client take-on process. The only problematic area noted in the limited scope of this review related to AML Rules is the client take-on process in an acquisition.
Concluding his letter, Stirewalt said the Supervision Division of the DFSA would hold an “outreach session” detailing the findings of the review on 23 October 2012.
