• Internal Code :
  • Subject Code :
  • University :
  • Subject Name : Regulatory compliance (preferably the FSRA in Abu Dhabi)

Table of Contents

Question 1.

Question 2.

Question 3.

Question 4.


International Advanced Certificate in Regulatory Compliance - Question 1

Historically, regulation has been based on local or national issues and concerns. However, as the markets have become more and more global it has given rise to attempts to harmonise international initiatives, both to ensure greater global stability and to enhance cross-border opportunities. Abu Dhabi, which accounts for the largest area within the UAE, has been subject to several regulatory changes and alterations in the recent era with the most prominent changes relating to the financial services industry. Governed by the FSRA or the Financial Services Regulatory Authority, the key objectives of the changes within the industry are related to permitting higher levels of efficiency as well as enhanced transparency to attract global investors. The UAE has consistently strived to become the next financial hub in the world, both in terms of the innovation within the services and the long-term visions within the organisations. In terms of the reasons behind the changes, the dependence on oil as one of the key economic drivers has been a major reason (The Abu Dhabi Global Market Financial Services Regulatory Authority, 2020). The Emirates of late have managed to drive away from the dependence on oil and this has led to numerous industrial developments within the region. The financial services industry has also been developed to a large extent, thus warranting the need for additional legislation and regulatory compliance measures.

One of the most prominent examples in terms of how regulations are necessary within the modern environment to relate to Abu Dhabi’s adoption of the IFRS 9 standards in 2017 followed by the introduction of the Value Added Tax System in 2018. Transparency is the key fundamental in this regard, and the government along with the organisations has strived to ensure economic transparency is prioritized in the coming years. Record keeping and reporting requirements are also relatively complex in the modern environment, which further requires regulatory changes to ensure efficiency. An example would be Abu Dhabi’s adoption of the Basel III regulations that was developed by the Bank for International Settlements. UBF or the UAE Banks Federation has also engaged in regular workshops to facilitate compliance with the Basel III regulations by the end of 2019 (Huxley, 2019). Cumulatively, these aspects go on to show how commercial ecosystems in the modern era are certainly in the need for regulatory changes to enhance the functioning levels over time in a progressive manner.

Improved protection and security measures are other major drivers when considering the regulatory changes that take place in the current environment. For instance, Abu Dhabi’s newly enacted Foundations Law No. 3 of 2018 brought about an essentially new regime to guarantee creditor protection, business continuity and the planning of private wealth (Dubai International Financial Centre, 2020). Flexibility and certainty were the key areas of focus within the new law, and it goes to show how the region is gradually stepping up to pose itself as the most viable financial hub across the world.

International Advanced Certificate in Regulatory Compliance - Question 2

The concept of risk management within the financial services industry can be defined as a pre-emptive attempt to identify the risk factors and mitigate them effectively to protect the shareholders and the creditors. While all theories of financial economics suggest that firms should always engage in holding up the interests of their stakeholders and shareholders, it is not always the case. The financial services industry, especially when considering the UAE’s positioning as a global financial hub, entails several critical implications that place an immense responsibility on the regulators to ensure complete protection to all the individuals involved. A prime example in this regard would be the uncovering of the recent NMC Health scandal, which is the largest hospital organisation in the Middle East. Listed in the London Stock Exchange, the company was found to engage in inflating cash balances and overpaying for assets to pull in investors (Parasie, 2020). The founders of the company were found to engage in serious measures of fraud and wrongdoing, which eventually led to a series of complications for both the national governments as well as the individuals involved in NMC Health. The estimates showed that over $4 billion in losses were essentially hidden through shell companies.

The importance of risk management is extended onto the boards of the firms regulated within an industry as well. According to Hamdan (2010), financial risk management is of paramount importance for organisations operating in the modern environment, especially in the context of hedging risks. The financial services markets both within the UAE and beyond are subject to several dynamic volatilities and changes. It makes it imperative for the regulatory board, which is the FSRA in this regard, to engage in creating a robust framework for risk management to protect the firms and its creditors. Market risks are inevitable, and the whole basis of risk management is to ensure that these risks are identified well before time. One of the prime examples, albeit not directly related to the financial services industry, is the 2008 oil crisis that rocked the UAE economy. As the international prices for barrels came down, UAE suffered from high levels of debt and unemployment within a short period. Naturally, the situation had its impacts on the financial sectors of the region as well, with the overall economy estimated to shrink by over 2% (Baghestani & AbuAl-Foul, 2019). Naturally, the presence of strong regulatory frameworks ensures that the firms remain protected in crises such as these, especially since the UAE has gradually gone on to become a financial as well as a cultural hub in the modern-day 21st century.

Considering the high-risk nature of the financial services markets, risk management and its subsets are crucial for both the regulatory boards as well as the managerial boards of the regulated companies. While the international appeal and market stability are the key objectives for the boards as they are essentially representatives of the government, business continuity and profitability are the key objectives for the firms. However, a sound interplay of relationships between the two is extremely crucial, as in the absence of the same, situations such as the one involving NMC Health are imminent and hard to avoid.

International Advanced Certificate in Regulatory Compliance - Question 3

The regulatory methodology is an important area of discussion when engaging in critiquing the overall effectiveness of the regulation and how it safeguards the rights and interests of those involved. Taking into consideration the financial services sector of the UAE and the role of the FSRA in Abu Dhabi, UAE, the methodology of regulation can be broken down into two key segments. The first relates to the aspect of prohibition, where a generalised approach is maintained in terms of preventing any organisation to engage in the regulated business activity without the authorisation of the regulator. The other relates to a more specific approach, where all financial promotions made within the region would have to be made by a firm that is licensed or authorised by the regulator.

Several specific rules are also applicable to the financial services sector within the UAE, with the most prominent example being the General Rulebook. The Financial Services and Markets Regulations 2015 is another important piece of legislation that has added to the quality of regulation in terms of the generalised approach (Abu Dhabi Global Market, 2015). The FSRA takes on a multimodal approach to determining the area of coverage for the regulations. The first level of regulation relates to the firms that engage in the regulated activity, which is financial services in this regard, while the second relates to the employees of the regulated firms. One of the key areas of considerations for the FSRA relates to regulating the conduct of the business over time. A three-tier approach is evident in this regard, where the FSRA has divided the client categories into retail, professional and market counterparties.

Market infrastructure is another important area of consideration within the regulatory methodology implemented by the FSRA within Abu Dhabi. It has implemented the MIR or the Market Infrastructure Rules that apply to all exchange houses and clearing facilities catering to the financial services sector in Abu Dhabi. The regulatory body has also engaged in creating a set of Fund Rules, which govern the dealing and the transactional characteristics of securities and fund types within the region. Any regulated body catering to the financial services sector would have to abide by the Fund Rules when dealing in a transaction with a client irrespective of the client being from within the UAE or beyond.

Another important area of incorporation within the FSRA’s regulation frameworks is the concerto of Islamic Finance rules. Shari’a law is the key prerogative in this regard The Islamic Finance Rules applicable within the UAE are predominantly aimed at improving the conventionality within the financial institutions and ensuring improved appeal to the global ecosystem. Insurance business and securities are also a key area of consideration within the regulatory methodology adopted by the FSRA (Shearman & Sterling LLP, 2020). The regulatory board has largely tried to take on an international approach, borrowing several guidelines and specifications from the regulatory frameworks implemented in Singapore and Australia. This is largely done to prevent market abuse and ensure that no anti-competition or anti-trust practices are allowed to foster within the UAE financial services sector.

International Advanced Certificate in Regulatory Compliance - Question 4

a) Having joined the regulatory compliance team of International Organisation (IO), one of Abu Dhabi’s most well-known financial services organisations, it would be important to discuss the challenges and the key priorities for FSRA or Financial Services Regulating Authority, the primary regulator over the coming months. The foremost area of consideration would certainly be the ease of formation for new businesses and the possible company structures (Bayzid et al. 2020). UAE of late has seen a massive upsurge of foreign investment in the wake of the systematic non-dependence on oil, thus making the market highly attractive to overseas organisations and government. Financing and sound economic competencies are the key functions that are related to the business structure and formation of new companies. Naturally, IO, catering to the financial services sector, is certainly warranted to abide by the regulations and ensure compliance to the fullest possible extent (Lexology, 2016). The priority for the FSRA in this regard would be to streamline the process of applying for business within Abu Dhabi and ensuring that the regulatory formalities are completed efficiently. The challenge, however, would be to ensure that ease of formation and regulation go hand in hand in a simultaneous manner. While relaxing compliance requirements could help the influx of money, it would also broaden the potential for a financial scandal, thus degrading the international appeal of the region cumulatively.

Another major challenge that rests with the FSRA in terms of ensuring effective regulation over the financial services industry is the adoption of technology and how it would accommodate organisations that offer virtual currencies as financial services. The board has taken several steps in this regard, with the most prominent being the new regulations titled Virtual Asset Activities. IO has also been interested in the field, especially when considering most of the world superpowers have gradually begun to show interest in cryptocurrency as a key component within financial services sectors (Abu Dhabi Global Market, 2020). FSRA has been instrumental in this regard, already having given the green light to several Abu Dhabi based exchanges. The priority in this regard would be to ensure that virtual currency systems are soundly incorporated within the conventional financial mechanisms that currently exist in the UAE. Furthermore, it would also be important that the technological competencies of the board are improved significantly since all the transactions relating to virtual assets are conducted online. It leaves a major scope for financial frauds, as already witnessed by developed economies like that of New Zealand.

Lastly, another major challenge that the FSRA faces is to normalise the prevalence of Islamic finance in the modern 21st-century business environment. Years of systematic approaches towards Islam phobia and other related subsets have gradually diminished the relevance of Shari’a law to financial services. However, FSRA has prioritized several initiatives to ensure the resurgence of Islamic finance, especially in terms of being one of the spearheads in bringing back the concept to relevance.

b) The relevance of the challenges and the priorities are very much within the purview of IO, especially since it caters to the financial services sector within the UAE and is directly under the regulations of FSRA. Considering the first challenge of facilitating ease of business formation and regulation simultaneously, the activities of the main stakeholders bear an immense amount of importance. The key stakeholders within the regulatory environment include the regulatory body, the regulated body, the customers, the shareholders and the extended community. Any initiative or enactment aimed at improving regulation or ease of business would inherently require a sound interplay of relationships between all the mentioned stakeholders. While the policies implemented by the regulatory body would have to be comprehensive and entail moral correctness, the adherence and compliance aspects are largely reliant on the quality of the stakeholders within the organisation.

Considering the organisation of IO, the primary internal stakeholders include the managers, the employees and the board. Naturally, it would be crucial that these groups engage in practices that are in accordance with the principles enforced by the regulatory body. Moreover, communication with the external stakeholder groups including the customers and the investors is also of paramount importance in this regard. Customers from the crux of the financial services industry and their interests must be upheld by any means. Similarly, the finances received from the investors form the basis of operations within the financial services sector. Moving on to the aspect of virtual currencies, they have gradually begun to establish a certain degree of dominance in the recent era. Naturally, IO would have to capitalise on the same along with the regulatory body to ensure that the profitability potential is not let go of, especially since UAE has consistently maintained its ambitions towards becoming the world’s next financial and cultural hub.

Islamic Finance and financial principles within Shari’a law have long been followed within the UAE along with several Islamic nations in the world. However, the relevance and prevalence have been significantly diminished by years of systematic propaganda. Naturally, the priority for the regulatory board to ensure that they remain credible is largely reliant on how well the principles of Islamic finance are communicated to the rest of the international community. It would also fall under the purview of IO since it caters to the financial services sector and operates based on Shari’a principles and Islamic finance. Stakeholder communication would certainly be imperative in this regard, especially external groups including the customers, the investors and the general community.

References for International Advanced Certificate in Regulatory Compliance

Abu Dhabi Global Market. (2015). Financial Services and Markets Regulations 2015. Retrieved 22 June 2020, from https://www.adgm.com/documents/legal-framework/public-consultations/2017/media-folder/03-annex-a_financial_services_and_markets_regulations-fsmr.pdf

Abu Dhabi Global Market. (2020). Virtual Asset Activities. Retrieved 22 June 2020, from https://www.adgm.com/setting-up/virtual-asset-activities/overview

Baghestani, H., & AbuAl-Foul, B. M. (2019). Dynamics between Oil Prices and UAE Effective Exchange Rates: An Empirical Examination. Review of Economics & Finance16(2), 89-103.

Bayzid, M., Alshamsi, A., Albeshr, S., Smith, A., Al Mulla, S., Almutairi, M., & Nobanee, H. (2020). Overview of Financial Institutions in the United Arab Emirates. Available at SSRN 3579299.

Dubai International Financial Centre. (2020). Legal Database | Laws & Regulations Administered by DIFC Authority. Retrieved 22 June 2020, from https://www.difc.ae/business/laws-regulations/legal-database/

Hamdan, Y. (2010). The UAE Country Risk Analysis. Population, 7-512.

Huxley. (2019). Are new regulations impacting banks in the UAE? | Huxley

Lexology. (2016). Abu Dhabi Global Markets: Rising to the challenge. Retrieved 22 June 2020, from https://www.lexology.com/library/detail.aspx?g=54c55c88-d7a9-41cf-b5da-baaed36267d9

Parasie. N. (2020). Bloomberg - How a Gulf Hospital Chain Unleashed Scandal in London?. Retrieved 22 June 2020, from https://www.bloomberg.com/news/articles/2020-05-12/how-a-gulf-hospital-chain-unleashed-scandal-in-london-quicktake

Shearman & Sterling LL. (2020). Abu Dhabi Global Market: Financial Services Regulations and Rules. Retrieved 22 June 2020, from https://www.shearman.com/~/media/Files/NewsInsights/Publications/2016/02/Abu-Dhabi-Global-Market-Financial-Services-Regulations-and-Rules-FIAFR-022416.pdf

The Abu Dhabi Global Market Financial Services Regulatory Authority. (2020). Managing a stable and robust financial services sector. Retrieved 22 June 2020, from https://www.adgm.com/financial-services-regulatory-authority

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