6.1.1. Notification of requirement to produce a report

Where the AFSA requires an Authorised Person to provide it with a report under section 97 of the Framework Regulations (Power to require the production of a report) it will give written notification to the Authorised Person of:

1. (a) the purpose of its report, and
2. (b) its scope, and
3. (c) the timetable for completion and
4. (d) any other relevant matters.

6.1.2. Nomination or approval of Skilled Person

• (a) The Person appointed to produce a report shall be referred to as the “Skilled Person”.
• (b) Where the AFSA nominates the Skilled Person, the Authorised Person must appoint the Person so nominated.
• (c) Where the AFSA invites the Authorised Person to nominate a Skilled Person, the Authorised Person must provide the AFSA with the details of an appropriately qualified Person within such period as the AFSA may direct. The AFSA will confirm within a reasonable period where it approves the appointment of the Person so nominated. If the AFSA does not approve the Person so nominated, it may require the Authorised Person to nominate another Person or itself nominate a Person.

6.1.3. Obligations of Skilled Person

When an Authorised Person appoints a Skilled Person, it must enter into a written contract with the Skilled Person whose terms:

• (a) require and permit the Skilled Person to co‐operate with the AFSA in relation to the Authorised Person and to communicate to the ASFA information on, or his opinion on, matters of which he has, or had, become aware in his capacity as a Skilled Person reporting on the Authorised Person in the following circumstances:

(i) the Skilled Person reasonably believes that, as regards the Authorised Person concerned:

(A) there is or has been, or may be or may have been, a contravention of any requirement that applies to the Authorised Person concerned; and

(B) that the contravention may be of material significance to the AFSA in determining whether to exercise, in relation to the Authorised Person concerned, any powers conferred on the AFSA under any provision of the Framework Regulations;

(ii) the Skilled Person reasonably believes that the information on, or his opinion on, those matters may be of material significance to the AFSA in determining whether the Authorised Person concerned satisfies and will continue to satisfy the fit and proper requirements; or

(iii) the Skilled Person reasonably believes that the Authorised Person is not, may not be, or may cease to be, a going concern;

• (b) require the Skilled Person to prepare a report within the time specified by the AFSA; and
• (c) waive any duty of confidentiality owed by the Skilled Person to the Authorised Person which might limit the provision of information or opinion by that Skilled Person to the AFSA in accordance with (a) or (b).

6.1.4. Contract with Skilled Person

An Authorised Person must ensure that the contract required under GEN 6.1.2:

• (a) is governed by the law of the AIFC; and
• (b) expressly provides that the AFSA has a right to enforce the provisions included in the contract under GEN 6.1.2; and
• (c) expressly provides that, in proceedings brought by the AFSA for the enforcement of those provisions, the skilled Person is not to have available by way of defence, set‐off or counter claim any matter that is not relevant to those provisions; and
• (d) if the contract includes an arbitration agreement, expressly provides that the AFSA is not, in exercising the right in (b) to be treated as a party to, or bound by, the arbitration agreement; and
• (e) provides that the provisions included in the contract under GEN 6.1.2 are irrevocable and may not be varied or rescinded without the AFSA's consent.

6.2.1. Core information

An Authorised Person or Ancillary Service Provider must provide the AFSA with reasonable advance notice of a change in:

• (a) the Authorised Person’s or Ancillary Service Provider's name; or
• (b) any business or trading name under which the Authorised Person or Ancillary Service Provider carries on a Regulated Activity or Market Activity;
•  or Ancillary Service; or
• (c) the address of the Authorised Person’s or Ancillary Service Provider's principal place of business in the AIFC; or
• (d) in the case of a Branch, its registered office or head office address; or
• (e) its legal structure; or
• (f) an Approved Individual’s name or any material matters relating to his fitness and propriety.

6.2.2. Branches

An Authorised Person which is incorporated in the AIFC must provide the AFSA with reasonable advance notice of the establishment or closure of a branch office anywhere in the world from which it carries on financial services.

6.2.3. Regulatory impact

An Authorised Person or Ancillary Service Provider must advise the AFSA immediately if it becomes aware, or has reasonable grounds to believe, that any of the following matters may have occurred or may be about to occur:

1. (a) the Authorised Person’s or Ancillary Service Provider's failure to satisfy the fit and proper requirements; or
2. (b) any matter which could have a significant adverse effect on the Authorised Person’s or Ancillary Service Provider's reputation; or
3. (c) any matter in relation to the Authorised Person or Ancillary Service Provider which could result in serious adverse financial consequences to the financial system or to other Authorised Persons or Ancillary Service Provider; or
4. (d) a significant breach of a Rule by the Authorised Person or Ancillary Service Provider, or any of its Employees; or
5. (e) a breach by the Authorised Person or Ancillary Service Provider, or any of its Employees of any requirement imposed by any applicable law by the Authorised Person or Ancillary Service Provider, or any of its Employees; or
6. (f) any proposed restructuring, merger, acquisition, reorganisation or business expansion which could have a significant impact on the Authorised Person’s or Ancillary Service Provider's risk profile or resources; or
7. (g) any significant failure in the Authorised Person’s or Ancillary Service Provider's systems or controls, including a failure reported to the Authorised Person by the Authorised Person’s or Ancillary Service Provider's Auditor; or
8. (h) any action that would result in a material change in the capital adequacy or solvency of the Authorised Person or Ancillary Service Provider; or
9. (i) non-compliance with Rules due to an emergency outside the Authorised Person’s or Ancillary Service Provider's control and the steps being taken by the Authorised Person or Ancillary Service Provider.

6.2.4. Major Acquisitions

(1) A Bank as defined in BBR Rules, which makes or proposes to make a Major Acquisition as defined in (2) must:

1. (a) if it is incorporated in the AIFC, comply with the requirements in Rule 6.2.4 (4) of GEN rules; and
2. (b) if it is a Branch, comply with the requirements in Rule 6.2.4 (7) of GEN rules.

(2) Subject to (3), a Major Acquisition is an acquisition in which the relevant Bank acquires or proposes to acquire, directly or indirectly, a shareholding in a Body Corporate where that acquisition:

1. (a) is of a value (whether by one acquisition or a series of acquisitions) of 10% or more of:
2. (i) the Bank’s Capital, as defined in BBR Rules; or

(ii) the capital resources of the Bank calculated in accordance with the requirements of the Financial Services Regulator in its home jurisdiction, if it is operating as a Branch in the AIFC; or

1. (b) even if it does not exceed the 10% threshold referred to in (a), it is reasonably likely to have a significant regulatory impact on the Bank’s activities.

(3) An acquisition is not a Major Acquisition for the purposes of (2) if it is an investment made by a Bank:

1. (a) in accordance with the terms of a contract entered into by the Bank as an incidental part of its ordinary business; or
2. (b) as a routine transaction for managing the Bank’s own investment portfolio and therefore can reasonably be regarded as made for a purpose other than acquiring management or control of a Body Corporate either directly or indirectly.

Guidance

(1) Examples of the kind of investments referred to in Rule 6.2.4(2)(b) include an acquisition of a stake in a small specialised trading firm that engages in high risk trades or other activities that could pose a reputational risk to the Bank.

(2) The onus is on a Bank proposing to make an acquisition to consider whether it qualifies as a Major Acquisition under Rule 6.2.4(2)(b). Generally, in the case of a Bank that is operating as a Branch in the AIFC), the significant regulatory impact referred to in Rule 6.2.4 (2) (b) should be prudential risk to the Bank as a whole. If a Bank is uncertain about whether or not a proposed acquisition qualifies as a Major Acquisition under Rule 6.2.4 (2)(b), the Bank may seek guidance from the AFSA.

(3) Examples of contractual arrangements of the kind referred to in Rule 6.2.4 (3)(a) include enforcement of a security interest in the securities of the investee Body Corporate or a loan workout pursuant to a loan agreement entered into between a bank and its client.

(4) Examples of the kind of investments referred to in Rule 6.2.4(3)(b) include temporary investments, such as investments included in the Bank’s trading book or which are intended to be disposed of within a short term (e.g. within 12 months).

(4) A Bank which is an Authorised Firm incorporated in the AIFC must:

1. (a) before making a Major Acquisition:
2. (i) notify the AFSA in writing of the proposed Major Acquisition at least 45 days prior to the proposed date for effecting the Major Acquisition; and

(ii) provide the AFSA with all the relevant information relating to that Major Acquisition to enable the AFSA to assess the regulatory impact of the proposed Major Acquisition on the Bank; and

1. (b) not effect the proposed Major Acquisition unless:
2. (i) it has either received written advice from the AFSA that it has no objection to that Major Acquisition or has not received any written objection or request for additional information from the AFSA within 45 days after the date of the notification; and

(ii) if the AFSA has imposed any conditions relating to the proposed Major Acquisition, it has complied with, and has the on-going ability to comply with, the relevant conditions.

(5) The AFSA may only object to a proposed Major Acquisition if it is of the view that the proposed Major Acquisition is reasonably likely to have a material adverse impact on the Bank’s ability to comply with its applicable regulatory requirements or on the financial services industry in the AIFC as a whole. The AFSA may also impose any conditions it considers appropriate to address any concerns it may have in relation to the proposed Major Acquisition.

(6) Without limiting the generality of its powers, the factors that the AFSA may take into account for the purposes of (2) include:

1. (a) the financial and other resources available to the Bank to carry out the proposed Major Acquisition;
2. (b) the possible impact of the proposed Major Acquisition upon the Bank’s resources, including its capital, both at the time of the acquisition and on an on-going basis;
3. (c) the managerial capacity of the Bank to ensure that the activities of the investee Body Corporate are conducted in a prudent and reputable manner;
4. (d) the place of incorporation or domicile of the investee Body Corporate and whether or not the laws applicable to that entity are consistent with the laws applicable to the Bank. In particular, whether there are any restrictions in relation to exchange of confidential regulatory information that are likely to pose challenges to the AFSA in carrying out its supervisory duties including those relating to consolidated supervision where applicable; and
5. (e) any other undue risks to the Bank or the financial services industry in the AIFC as a whole arising from the proposed Major Acquisition. Guidance Factors which the AFSA may take into account in assessing whether there are any undue risks arising from the proposed Major Acquisition include the size and nature of the business of the investee Body Corporate, its reputation and standing, its present and proposed management structure and the quality of management, the reporting lines and other monitoring and control mechanisms available to the Bank and the past records of the Bank relating to acquisitions of a similar nature.

(7) A Bank which operates as a branch in the AIFC:

1. (a) notify the AFSA in writing of any Major Acquisition in accordance with the notification requirement applying to the Bank under the requirements of the Financial Services Regulator in its home jurisdiction (the home regulator); and
2. (b) if there is no notification requirement applying to the Bank under (a), comply with the requirements in Rule 6.2.4 (4) as if it were a Bank incorporated in the AIFC. The AFSA must follow the same procedures, and shall have the same powers, as set out in Rule

6.2.4 (6) in relation to such a notification.

(8) A Bank which gives to the AFSA a notification under (7)(a) must:

1. (a) notify the AFSA of the Major Acquisition at the same time as it notifies the home regulator;
2. (b) provide to the AFSA the same information as it is required to provide to the home regulator; and
3. (c) provide to the AFSA copies of any communications it receives from the home regulator relating to the notification it has provided to the home regulator as soon as practicable upon receipt.

(9) The AFSA may, for the purposes of the requirements in this section, require from the Bank any additional information relating to the Major Acquisition as it may consider appropriate. A Bank must provide any such additional information to the AFSA promptly.

(10) The AFSA may, where it considers appropriate, withdraw its no objection position or modify or vary any condition it has imposed or any remedial action it has required under the Rules in this section. Guidance The AFSA will generally not withdraw a no objection position it has conveyed to a Bank, except in very limited circumstances. An example of such a situation is where the Bank is found to have provided to the AFSA inaccurate or incomplete information and that commission or omission has a material impact on the AFSA’s no objection decision.

(11) The procedures in Section 11 of the AIFC Financial Services Framework Regulations apply to a decision of the AFSA under this Rule 6.2.4, to object to an acquisition or to impose or vary conditions.

(12) If the AFSA decides to exercise its power under this Rule to object to an acquisition or to impose or vary conditions, the Authorised Firm may appeal to the AIFC Court for a review of the decision.

6.2.5. Suspected Market Abuse

(1) An Authorised Person must notify the AFSA immediately if it:

• (a) receives an order from a Client, or arranges or executes a transaction with or for a Client; and
• (b) has reasonable grounds to suspect that the order or transaction may constitute Market Abuse.

(2) The notification under (1) must specify:

• (a) sufficient details of the order or transaction; and
• (b) the reasons for the Authorised Person suspecting that the order or transaction may constitute Market Abuse.

(3) An Authorised Person must not inform the Client, or any other Person involved in the order or transaction, of a notification under this Rule.

6.2.6. Fraud and errors

An Authorised Person or Ancillary Service Provider must notify the AFSA immediately if one of the following events arises in relation to its activities:

• (a) it becomes aware that an Employee may have committed a fraud against one of its or another Person’s Clients; or
• (b) a fraud has been committed against it; or
• (c) it has reason to believe that a Person is acting with intent to commit a serious fraud against it; or
• (d) it identifies significant irregularities in its accounting or other records, whether or not there is evidence of fraud; or
• (e) it suspects that one of its Employees who is connected with the Authorised Person’s or Ancillary Service Provider's Regulated Activities or Market Activities may be guilty of serious misconduct.

6.2.7. Other regulators

An Authorised Person must advise the AFSA immediately of:

• (a) the granting or refusal of any application for or revocation of authorisation to carry on financial services in any jurisdiction; or
• (b) the granting, withdrawal or refusal of an application for, or revocation of, membership of the Authorised Person of any regulated exchange or clearing house; or
• (c) the Authorised Person becoming aware that a Financial Services Regulator or another enforcement or regulatory agency has started an investigation into the affairs of the Authorised Person; or
• (d) the appointment of inspectors, howsoever named, by a Financial Services Regulator or another enforcement or regulatory agency to investigate the affairs of the Authorised Person; or
• (e) the imposition of disciplinary measures or disciplinary sanctions on the Authorised Person in relation to its financial services or governance by any Financial Services Regulator or any regulated exchange or clearing house.

6.2.8. Action against an Authorised Person

An Authorised Person must notify the AFSA immediately if:

• (a) civil proceedings are brought against the Authorised Person and the amount of the claim is significant in relation to the Authorised Person’s financial resources or its reputation; or
• (b) the Authorised Person is prosecuted for, or convicted of, any offence involving fraud or dishonesty, or any penalties are imposed on it for tax evasion.

6.2.9. Winding up, bankruptcy, insolvency and resolution

An Authorised Person or Ancillary Service Provider must notify the AFSA immediately on:

• (a) the calling of a meeting to consider a resolution for winding up the Authorised Person or Ancillary Service Provider; or
• (b) an application to dissolve the Authorised Person or Ancillary Service Provider, or to strike it from the register maintained by the AIFC Registrar of Companies, or a comparable register in another jurisdiction; or
• (c) the presentation of a petition for the winding up of the Authorised Person or Ancillary Service Provider;or
• (d) the making of, or any proposals for the making of, a composition or arrangement with creditors of the Authorised Person or Ancillary Service Provider; or
• (e) the application of any Person against the Authorised Person or Ancillary Service Provider for the commencement of any insolvency proceedings, resolution action, appointment of any receiver, administrator or provisional liquidator under the law of any country.

6.2.10. Information relating to corporate governance and remuneration

An Authorised Person must provide to the AFSA notice as soon as practicable of any significant changes to its corporate governance framework or the remuneration structure or strategy that affect its Regulated Activities or Market Activities.

6.2.11. Accuracy of information

An Authorised Person or Ancillary Service Provider must take reasonable steps to ensure that all information that it provides to the AFSA in accordance with any applicable legislation is:

• (a) factually accurate or, in the case of estimates and judgements, fairly and properly based; and
• (b) complete, in that it should include anything of which the AFSA would reasonably expect to be notified.

6.2.12. Correction of inaccurate information

An Authorised Person or Ancillary Service Provider must notify the AFSA immediately it becomes aware, or has information that reasonably suggests, that it:

• (a) has or may have provided the AFSA with information which was or may have been false, misleading, incomplete or inaccurate; or
• (b) has or may have changed in a material particular.

6.3.1. Financial statements

An Authorised Person must prepare financial statements in accordance with the International Financial Reporting Standards ("IFRS") for each financial year of the Authorised Person.

6.3.2. Approval of financial statements

The financial statements of an Authorised Person must be approved by the Directors and signed on its behalf by at least one of the Directors.

6.3.3. Accounting records and regulatory returns

An Authorised Person must keep Accounting Records which are sufficient to show and explain transactions are such as to:

• (a) be capable of disclosing the financial position of the Authorised Person on an ongoing basis;
• (b) record the financial position of the Authorised Person as at its financial year end; and
• (c) ensure that any financial statements prepared by the Authorised Person comply with the Framework Regulations and Rules.

6.3.4. Retention of and access to records

An Authorised Person must ensure that its Accounting Records are:

• (a) retained by the Authorised Person for at least six years from the date to which they relate;
• (b) at all reasonable times, open to inspection by the AFSA or the Auditor of the Authorised Person; and
• (c) if requested by the AFSA capable of reproduction, within a reasonable period not exceeding five Business Days, in hard copy and in English.

6.3.5. Financial year end

An Authorised Person must not change its financial year end without the prior consent of the AFSA.

6.3.6. Appointment and termination of Auditors

An Authorised Person must:

• (a) notify the AFSA of the appointment of an Auditor using the form prescribed in Schedule 3;
• (b) prior to the appointment of the Auditor, take reasonable steps to ensure that the Auditor has the required skills, resources and experience to audit the business of the Authorised Person for which the Auditor has been appointed;
• (c) notify the AFSA immediately if the appointment of the Auditor is or is about to be terminated, or on the resignation of its Auditor, using the form prescribed in Schedule 3;
• (d) appoint an Auditor to fill any vacancy in the office of Auditor and ensure that the replacement Auditor can take up office at the time the vacancy arises or as soon as reasonably practicable; and
• (e) comply with any request by the AFSA to replace an Auditor previously appointed by that Authorised Person.

6.3.7. Independence of the Auditor

An Authorised Person must:

• (a) take reasonable steps to ensure that the Auditor and the relevant audit staff of the Auditor are independent of and not subject to any conflict of interest with respect to the Authorised Person; and
• (b) notify the AFSA if it becomes aware, or has reason to believe, that the Auditor or the relevant audit staff of the Auditor are no longer independent of the Authorised Person, or have a conflict of interest which may affect their judgement in respect of the Authorised Person.

6.3.8. Co‐operation with Auditors

An Authorised Person must take reasonable steps to ensure that it and its Employees:

• (a) provide any information to its Auditor that its Auditor reasonably requires, or is entitled to receive as Auditor;
• (b) give the Auditor right of access at all reasonable times to relevant records and information within its possession;
• (c) allow the Auditor to make copies of any records or information referred to in (b);
• (d) do not interfere with the Auditor's ability to discharge its duties;
• (e) report to the Auditor any matter which may significantly affect the financial position of the Authorised Person; and
• (f) provide such other assistance as the Auditor may reasonably request it to provide.

6.3.9. Audit reports

An Authorised Person must:

• (a) require, in writing, its Auditor to:
• (i) conduct an audit of and produce a report on the Authorised Person’s financial statements in accordance with the International Standards on Auditing; and
• (ii) such other reports as the AFSA may require; and
• (b) submit any reports so produced to the AFSA within four months of the Authorised Person’s year end.