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Background
Best Practice

Issues

The FSFR have been drafted based on various sources including similar framework legislation in the United Kingdom, Dubai International Financial Centre (the “DIFC”), Abu Dhabi Global Market, Qatar Financial Centre (the “QFC”), Guernsey, and Australia. The DIFC Regulatory Law was served as the primary legislative model for decision-making procedures. However, the DIFC has the Regulatory Policy and Process Sourcebook (the “RPP”) which specifies that decisions made by the DFSA fall into three categories: 

  1. (a) decisions which are subject to the procedures in Schedule 3 of the Regulatory Law (“Schedule 3 Decisions” is similar to Schedule 1 of the FSFR), e.g., a decision to withdraw the Licence of an Authorised Person;
  2. (b) decisions which are subject to a bespoke process instead of the procedures in Schedule 3, e.g., the rejection of a new Controller of an Authorised Firm; and 
  3. (c) routine operational decisions, e.g., a DFSA decision to start an investigation against a Person. These decisions are not subject to the procedures in Schedule 3 and are not referable to the Financial Markets Tribunal but may be reviewed by way of judicial review in the DIFC Court.

Section 10 (1) of the FSFR provides that ‘[w]here a provision in these Regulations or Rules made thereunder requires the AFSA to make a decision, the AFSA will follow the decision making procedures set out in Schedule 1’. Since there is no document in the AIFC similar to the DIFC Regulatory Policy and Process Sourcebook, there are some uncertainties in which cases the AFSA should follow procedures specified in Schedule 1.


ASP regime

The absence of the supervisory powers of the AFSA in relation to ASPs has been highlighted in recent assessments conducted of the AIFC jurisdiction.

During the self-assessment against the International Organization of Securities Commissions (“IOSCO”) principles for August 2020 – March 2021, it was identified that out of 37 principles, ASP is covered in five principles from 19 to 23. AFSA is fully compliant with principles 19, 20, 21 and 23.

Principle 22 was marked as not compliant with following deficiencies and proposed solutions. It was noted that AIFC legal framework does not contain provisions that allow AFSA to an adequate level of oversight (ongoing supervision, inspections, enforcement) in relation to ASPs.

The leading financial centres in the Asian region (e.g., Dubai International Financial Centre (“DIFC”), Abu-Dhabi Global Market (“ADGM”), Qatar Financial Centre (“QFC”). Hong-Kong) have implemented supervisory framework for ASPs or DNFBPs.


The AIFC in its further development stage needs to have a supervisory framework to maintain the competitive advantages that its regulatory system offers to investors in or from the region.