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. 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 (USD
17,191.00 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".
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. [See footnote 1].
 See section 4.2 "The
Principles for Authorised Firms" of The DFSA Rulebook General
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