1.1. Introduction

The purpose of these Banking Business Rules (BBR) is to establish the prudential framework for Authorised Firms carrying out Banking Business. These rules are based on the Basel Accords and on the Basel Core Principles for Effective Banking Supervision, issued by the Basel Committee on Banking Supervision.

1.2. Commencement

These rules commence on 30 July 2018.

1.3. Effect of definitions, notes and examples

(1) A definition in the AIFC Glossary also applies to any instructions or document made under these rules.

(2) A note in or to these rules is explanatory and is not part of these rules. However, examples and guidance are part of these rules.

(3) An example is not exhaustive, and may extend, but does not limit, the meaning of these rules or a provision of these rules to which it relates.

(4) Unless the contrary intention appears, a reference in these rules to an accord, principle, standard or other similar instrument is a reference to that instrument as amended from time to time.

1.4 .Banking Business firms

(1) Banking Business comprises the Regulated Activities of Accepting Deposits, Dealing in Investments as Principal and Providing Credit. An Authorised Firm that has a license from the AFSA to conduct any of those activities is a Banking Business firm.

(2) However, an Authorised Firm that is an Islamic Bank or an Islamic Broker dealer or an Islamic Financing Company (as defined in the IBB Rules) is not a Banking Business firm for the purposes of these Rules.

(3) A Banking Business firm may be a Bank or a Broker Dealer or a Credit Provider.

Guidance

A firm that conducts any of the activities that make up Banking Business, or a combination of those activities, will need to consider the extent to which its business model is subject to the prudential requirements set out in these rules.

These rules are designed to address the different prudential risks that could arise from the broad range of business models, risk appetites and risk profiles of Banking Business firms.

For example, a firm that solely conducts the activity of Dealing in Investments as Principal (that is, a Broker Dealer) will need to consider the extent to which its activities in buying, selling, subscribing to or underwriting investments attract prudential risks that are subject to the requirements of these rules.

In contrast, a firm that is a Bank and that also conducts the activity of Dealing in Investments as Principal would be subject to a broader range of prudential requirements.

In both examples, these rules apply in accordance with the nature, scale and complexity of the firm’s business.

1.5. Bank

(1) An Authorised Firm is a Bank if it is authorised to conduct the Regulated Activity of Accepting Deposits and/or Opening and Operating Bank Accounts.

(2) An Authorised Firm is a Bank even if it is also authorised to conduct any other Regulated Activity or activity. The authorisation for Accepting Deposits and/or Opening and Operating Bank Accounts qualifies an Authorised Firm as a Bank

1.6. Broker Dealer

(1) An Authorised Firm is a Broker Dealer if it is authorised to conduct the Regulated Activity of Dealing in Investments as Principal and it is not a Bank.

(2) A Broker Dealer may raise funds from capital markets or money markets using debt instruments of any type but must not accept deposits.

(3) An Authorised Firm is a Broker Dealer even if it is also authorised to conduct any other Regulated Activity (except Accepting Deposits). The authorisation for Dealing in investments as a Principal and the absence of an authorisation for Accepting Deposits qualifies an Authorised Firm as a Broker Dealer.

(4) An Authorised Firm licensed to conduct the Regulated Activity of Dealing in Investments as Principal on a matched principal basis does not fall under the category of Broker Dealer. Such firms are subject to the AIFC PRU INV Rules and are not subject to the BBR Rules.

1.7. Credit Provider

(1) An Authorised Firm is a Credit Provider if it is authorised to conduct the Regulated Activity of Providing Credit and it is not a Bank.

(2) Credit Providers may raise funds from capital markets or money markets using debt instruments of any type but must not accept Deposits.

(3) An Authorised Firm is a Credit Provider even if it is also authorised to conduct any Regulated Activity (except Accepting Deposits). The authorisation for Providing Credit and the absence of an authorisation for Accepting Deposits qualifies an Authorised Firm as a Credit Provider.

(4) A Credit Provider may conduct the Regulated Activity of Dealing in Investments as Principal, if it receives the necessary authorisation from the AFSA.

(5) The Regulated Activity of Providing Credit is taken to include the activity of providing Commercial Captive Finance. The BBR applies to a Credit Provider providing Commercial Captive Finance on a risk-proportionate basis, where AFSA may have regard, including but not limited to, to the firm’s scale and complexity, business model, customer base and level of engagement in capital or money markets.

1.8. Application of these rules — genera

(1) Except as stated otherwise, these rules apply to a Person that has, or is applying for, a license to conduct Banking Business, as defined in Rule 1.4(1).

(2) Except as stated otherwise, all references to a Bank in the BBR Rules must be read as referring also to Broker Dealers, defined in Rule 1.6 and Credit Providers, defined in Rule 1.7.

Consequently, all the regulatory requirements imposed by these BBR Rules apply to all entities licensed to carry out Banking Business as defined in Rule 1.4 (1), except for specific sections or rules wherein their applicability is defined in a particular manner. For clarity, all the regulatory requirements imposed by the BBR Rules apply to Banks, Broker Dealers and Credit Providers as defined in Rules 1.5, 1.6 and 1.7, unless otherwise specified in the BBR.

(3) Firms licensed by the AFSA to conduct the Regulated Activities of Advising on a Credit Facility, Arranging a Credit Facility or Providing Money Services are subject only to Base Capital Requirements set out in Rule 4.10.

Guidance

It is possible for an Authorised Firm to be authorised both as a Bank under these rules and to hold a license to carry on one or more other Regulated Activities defined in Schedule 1 of the AIFC GEN Rules. Both these rules and the relevant rules for those activities could apply to such an Authorised Firm in relation to the activities they are involved in. In relation to such an Authorised Firm, however, the Capital requirements in these rules apply. If that Authorised Firm complies with the Capital requirements in these rules, it is taken to comply with the prudential rule requirements specified in AIFC PRU INV Rules.

1.9 Application of these rules—branches

(1) Chapter 4 (Capital adequacy) does not apply to a Bank operating in the form of a branch in the AIFC, in respect of the quantitative capital requirements and related rules specified in Chapter 4. The rules specifying non-quantitative requirements in respect of governance, board responsibilities, policies, systems and controls apply to Banks operating as branches in the AIFC.

(2) However, the AFSA may require a branch to have Capital resources or to comply with any other Capital requirement if the AFSA considers it necessary or desirable to do so in the interest of effective supervision of the branch.

1.10 Requirement for policy also requires procedures and systems

In these rules, a requirement for a Bank to have a policy also requires such a firm to have the procedures, systems, processes, controls and limits needed to give effect to the policy.

1.11 Responsibility for principles

(1) A Bank’s Governing Body is responsible for the firm’s compliance with the principles and requirements set out in these rules.

(2) The Governing Body must ensure that the firm’s senior management establishes and implements policies to give effect to these rules. The Governing Body must approve significant policies and any changes to them (other than formal changes) and must ensure that the policies are fully integrated with each other. Note: The significant policies relate to the adequacy of capital and the management of various prudential risks faced by a Bank and group risk, as set out in the following Chapters.

(3) The Governing Body must review and appropriately adjust the firm’s policies from time to time, taking into account changed operating circumstances, market conditions, activities and risk profiles. The interval between reviews must be appropriate for the nature, scale and complexity of the Bank’s business, but must not be longer than 12 months.

(4) The Governing Body must ensure that the policies are made known to, and understood by, all relevant staff.