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Consultation Paper No. 43 Amendments Concerning the Financial Markets Tribunal and Regulatory Appeals Committee
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Feb 26 2007 onwards

Consultation Paper No. 43 Amendments Concerning the Financial Markets Tribunal and Regulatory Appeals Committee



Download this Consultation Paper in PDF format.

Why are we issuing this paper?

1. This Consultation Paper seeks public comment on the DFSA's proposals to recommend to the Ruler to amend the Regulatory Law and the Markets Law. References throughout this paper to the DFSA's proposals to amend these laws are for convenience only and not intended to imply that the DFSA has the power to amend these laws. Only the Ruler of Dubai has the authority to amend or enact DIFC laws. The DFSA's proposed amendments, which are set out in Annex A, are intended to clarify the role and jurisdiction of the Financial Markets Tribunal ("FMT") and the Regulatory Appeals Committee ("RAC") and enhance the independence of the FMT.
2. In summary the key proposals:
(a) eliminate the provisions that allow DFSA Board and RAC members to be appointed to the FMT and FMT members to be appointed to RAC, to enhance FMT independence;
(b) extend the statutory immunity provisions to DFSA directors, tribunal and committee members;
(c) provide each of the RAC and FMT with the power to transfer proceedings to the other tribunal where there is a common issue of fact or law, the parties consent and it is in the interests of the DIFC, justice and efficiency;
(d) clarify that the FMT's jurisdiction is restricted to FMT regulatory proceedings and does not include the determination of private inter party or commercial disputes;
(e) provide that the FMT's decision on an appeal of an Exchange decision is final and cannot be appealed further to the DIFC Court.

Who should read this paper?

3. The proposals in this paper would be of primary interest to regulated entities and persons, including their legal counsel, as well as financial market participants generally.

How is this paper structured?

4. In this paper, we set out:
(a) Background in paragraphs 7 to 23;
(b) Scope, purpose and details of the proposals in paragraphs 23 to 44;
(c) Annex A — Draft amendments for the Regulatory and Markets Laws.

How to provide comments?

5. All comments should be forwarded to the person specified below. You may, if relevant, identify the organisation you represent in providing your comments. The DFSA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise at the time of making comments.

What happens next?

6. The deadline for providing comments on these proposals is 7 May 2007. Once we receive your comments, we will consider if any further refinements are required to these proposals. We will then progress the changes for enactment by the Ruler of Dubai. You should not act on these proposals until the relevant changes to the Regulatory Law and Markets Law are made and in force. We will issue a notice on our website telling you when this happens.

Comments to be addressed to:
Joyce C. Maykut QC
General Counsel
DFSA
PO Box 75850
Dubai, UAE

or e-mailed to: ebenedikovicova@dfsa.ae

Background

7. The DFSA's regulatory tribunal regime consists of an internal appeals committee called the Regulatory Appeals Committee and a disciplinary tribunal called the Financial Markets Tribunal. The DFSA's tribunal regime was, in part, modelled on that of the FSA but adapted to reflect the DIFC's unique circumstances. The primary rationale for two tribunals was to have purely regulatory or administrative decisions treated differently than enforcement or disciplinary decisions. This was to ensure that the DFSA retained control of regulatory discretion and policy and to ensure that enforcement or disciplinary matters were considered by a body operationally independent of the DFSA Executive and Board. In addition, the tribunal structure was adapted to reflect a much smaller market and the absence, apart from the DIFC Court, of a well developed independent governmental and administrative tribunal infrastructure of the kind that exists in the UK and many other common law jurisdictions.
8. However, it became apparent in a subsequent analysis that the DFSA's bifurcated tribunal regime lacked jurisdictional clarity. It also became apparent that some of the original legislative intent for the regime had become obscured as the remits and composition of the RAC and FMT evolved. Two particular areas of concern related to the independence of the FMT and the FMT's role in adjudicating disputes.
9. The proposals in this paper are primarily intended to address that lack of clarity and enhance the independence of the FMT. Some background on the legislative history may be useful in understanding the specific amendments being put forward in this paper.

RAC

10. When the DFSA's tribunal regime was designed, RAC was intended to function as an "internal" appeal mechanism for DFSA Executive decisions regarding regulatory (administrative as opposed to disciplinary or enforcement) matters. The thinking was that, while it was important for affected parties to be able to review the exercise of regulatory discretion by the DFSA Executive, it was essential for the regulator, and not the courts, to have the final say about who was allowed into the "regulated arena". Simply put, it was necessary to have a check or second 'set of eyes' on the Executive's exercise of regulatory discretion, without losing regulatory control. Consequently, licensing and listing decisions were put under the appellate jurisdiction of RAC. (At the time RAC was established, the DFSA was the Listing Authority. It was subsequently transferred to the DIFX.)
11. The intention was for RAC to consider appeals on both fact and law, and although the possibility of some form of limited review of RAC decisions by the DIFC Court was not ruled out, decisions of RAC were to be final.
12. The Regulatory Law that was eventually enacted empowers RAC to conduct a full merits review of Executive decisions that come before it on appeal. Appropriate to its function, RAC is restricted to determining what action the DFSA should take on regulatory matters and to remitting the matter to the Chief Executive with directions. Rather than being final as initially proposed, RAC decisions are subject to independent oversight in that they may be reviewed by the DIFC Court by way of judicial proceedings on a point of law. Members to RAC are appointed by the Board and may include Board members, persons independent of the Board and Executive, as well as members of the FMT.
13. The RAC's primary jurisdiction is described in Article 27 of the Regulatory Law and includes appeals specifically provided for in the Rules or any other DIFC Law. Under Article 27 RAC is empowered to hear and determine appeals of DFSA Executive decisions relating to the authorisation, licensing or registration of Authorised Market Institutions, Authorised Firms, Recognised Bodies, Recognised Members, Authorised Individuals, Ancillary Service Providers and Auditors.
14. The legislative intent was not to give RAC appellate jurisdiction over all DFSA Executive decisions, only key regulatory decisions. This means that where no right of appeal is specifically prescribed, there is no right of appeal to RAC. It also means if RAC's jurisdiction is to be expanded it must be specifically prescribed in the Laws or Rules. Consequently where no right of appeal is specifically given in the Law in relation to a decision, no general right of appeal to RAC can be inferred.
15. RAC's jurisdiction was expanded under the Markets Law, the Law Regulating Islamic Financial Business and the Collective Investment Law to include appeals of regulatory or administrative decisions related to Islamic finance institutions and windows, the regulation of the capital markets and collective investment funds.
16. The Regulatory Law provides that RAC is a Board committee to be chaired by a non-executive member of the Board and it may include other persons independent of the Board and Executive. The Law specifically provides that Board members and FMT members may be appointed to RAC, although to date no FMT members have been appointed to RAC. Currently four Board members and one independent person have been appointed as members of RAC. Subject to the provisions appointing FMT and Board members to RAC, the Regulatory Law prohibits the appointment of any officer, director, employee or agent of the DFSA or of any other agency or body of the DIFC established under Dubai Law. The Law also requires that all persons appointed to RAC must have relevant qualifications, expertise and experience in the regulatory aspects of financial services and related activities.

FMT

17. The FMT was established under the Regulatory Law to function as a disciplinary and enforcement tribunal.
18. The primary jurisdiction of the FMT is described in Article 32 of the Regulatory Law. It empowers the FMT to hear and determine proceedings commenced by the DFSA relating to an alleged breach of the Regulatory Law or Rules or any other DFSA administered legislation as well as any matter that may be prescribed in the Rules or other law. As with the RAC, this means that the FMT's jurisdiction must be specifically prescribed if it is to be expanded.
19. Under the Markets Law, the FMT's remit was expanded substantially taking it from a purely disciplinary tribunal, to a broadly empowered financial services markets tribunal with a remit and powers comparable to other international financial services regulatory tribunals.
20. Consequently the FMT's jurisdiction now includes the authority:
(a) under Article 32 of the Regulatory Law to hear and determine proceedings commenced by the DFSA relating to an alleged breach of DFSA administered laws or Rules;
(b) under Article 54 of the Markets Law to hear and determine applications brought by the DFSA for a broad range of permanent, interim and ex parte orders, irrespective of whether a contravention has occurred (DIFC "public interest" orders);

Some of these DIFC "public interest" orders have a market related focus, for example, cease trading orders, orders prohibiting persons from offering securities or from being involved in listed companies, orders withdrawing exemptions in the Offered Securities, Takeover and Market Conduct Rules, orders relating to takeover offer activities and orders directing market disclosure. Others are much broader, for example, orders directing a person to submit to a review of his practices and procedures, prohibiting persons from acting as directors or officers of any company, reprimanding and fining persons or ordering them to disgorge ill-gotten gains or any other order that the FMT thinks fit in order to maintain the integrity of the DIFC and to ensure an efficient, honest, fair and transparent market.
(c) under Article 56(2) of the Markets Law to hear and determine 'commercial proceedings' between persons to the extent they arise out of issues enumerated in 56(2). These include issues arising out of the supervision of an AMI, an offer of securities, a takeover offer, merger or acquisition of shares or any matter subsequently prescribed in the Law or Rules;
(d) under Article 57(3) of the Markets Law to make at the conclusion of any proceedings, a finding or declaration of unacceptable circumstances or contravention of the Law or Rules and, in addition to any orders it could make under Article 54, a variety of orders as broad as an order "in resolution of any commercial proceeding" an order "requiring a respondent to do any act or thing" and any "consequential orders the FMT sees fit following a finding or the making of a declaration"; and
(e) under AMI Section 14 of the AMI Module in the DFSA Rulebook to hear and determine appeals from certain exchange decisions.
21. All FMT decisions are currently subject to a full appeal to the DIFC Court.
22. As for composition, the FMT was intended to be an "external" disciplinary tribunal which operated independently of the Board and Executive. Currently all FMT members, although appointed by the DFSA Board, are independent or 'outside' appointments. Although the original legislative intent was not to permit Board members to be FMT members, the final legislative drafting permitted the FMT to include Board and RAC members as well as persons independent of the Board and Executive. The Law also requires, as with RAC members, that all persons appointed to the FMT must have relevant qualifications, expertise and experience in the regulatory aspects of financial services and related activities. No Board or RAC members have been appointed to the FMT. The current FMT members are independent or 'outside' appointments.

Scope, purpose and details of the proposed amendments

Cross tribunal appointments

23. Allowing RAC and Board members to be appointed to the FMT was intended to enable the FMT to utilize the financial services regulatory experience and expertise of Board members if necessary without diminishing the actual independence of the FMT. However, these provisions were never acted upon and no RAC and Board members have been appointed to the FMT and all current FMT members are independent or 'outside' appointments. The DFSA believes that the FMT's primary role as an independent "external" tribunal will be clarified and enhanced by eliminating the provision enabling DFSA Board and RAC appointments.
24. Accordingly, to enhance the independence of the FMT, the DFSA is proposing to amend:
(a) Article 26 of the Regulatory Law to delete the provisions permitting, and add provisions prohibiting, the appointment of FMT members to the RAC;
(b) Article 31 of the Regulatory Law to delete the provisions permitting, and add provisions prohibiting, the appointment of RAC and DFSA Board members to the FMT.

RAC

25. The Regulatory Law provides that RAC is to be chaired by a non-executive member of the Board. As explained, this is to maintain regulatory control and ensure consistency in the application of regulatory discretion. However, because there are independent members appointed to RAC, the DFSA is of the view that it is equally important to ensure that each RAC appeal panel be chaired by a Board member.
26. Accordingly, the DFSA is proposing to amend Article 26(9) of the Regulatory Law by requiring the chairman of RAC when selecting three RAC members for a RAC appeal panel, to also require that at least one of the members be a Board Member who will serve to chair the appeal panel.

Statutory Immunity

27. The DFSA is of the view that it is necessary to confirm to avoid any doubt that the statutory immunity provisions available to DFSA employees, officers and agents are also available to DFSA directors, tribunal and committee members. This means that DFSA directors, tribunal and committee members, cannot be held liable for anything done or omitted to be done in the performance of their functions or duties so long as the act or omission is not done in bad faith.
28. Accordingly, the DFSA is proposing to amend Article 12(2) of the Regulatory Law to ensure the statutory immunity provisions cover a DFSA director, tribunal or committee member.

Transfer of Common Interest Proceedings

29. The DFSA is of the view that providing each of the RAC and FMT with the flexibility and discretion to transfer proceedings to the other tribunal is in the interests of the DIFC, justice and efficiency if there is a common issue of fact or law, if it is in the interests of the DIFC and if the parties consent. Tribunal is used here to refer to the FMT or RAC.
30. Given that the RAC's jurisdiction under Article 27 of the Regulatory Law and the FMT's jurisdiction under Article 32 of the Regulatory Law and 56 of the Markets Law intersect in several areas, there is a possibility of an appeal and proceeding arising out of the same or related facts being before the RAC and the FMT at the same time even though the issues and relief sought before each tribunal would have a different focus and purpose. Such a result may not be efficient. Accordingly, the DFSA is of the view that it is appropriate to provide the RAC and FMT with the discretion to refer proceedings before one tribunal to the other where there is a common issue of fact or law, the parties consent and it is in the interests of the DIFC, justice and efficiency.
31. To empower the RAC and the FMT with this discretion and to ensure that they are statutorily equipped to give the appropriate relief and to preserve the rights of the parties in such a transfer, the DFSA is proposing to add new provisions to Articles 27 and 32 of the Regulatory Law.
32. The additional provisions to Article 27 of the Regulatory Law, provide the RAC with the necessary powers to accomplish this proposal and the additional provisions to Article 32 of the Regulatory Law, provides the FMT with the same powers. This means that there will be no substantive change in how DFSA Executive regulatory decisions will be considered and dealt with on appeal and that there will be no substantive change in how enforcement or disciplinary proceedings are determined and dealt with.
33. Consequently, the proposed amendments are intended to:
(a) Enable the RAC chairman or the FMT president (as the case may be), on his own motion or that of a party to the appeal or proceeding, to direct that the appeal or proceeding be referred to the other tribunal for determination as directed if there is a common question of law or fact in the appeal and proceeding, the parties consent and it is in the interests of the DIFC, justice and efficiency.
(b) Provide the receiving tribunal with the same powers and remedies as the referring tribunal where an appeal or proceeding has been referred under these provisions including the power to direct that the proceeding or appeal be:
i. heard at the same time or following the other proceeding or appeal (as the case may be); or
ii. stayed until the determination of the other proceeding or appeal (as the case may be).
(c) Preserve the rights of a person to appeal or apply for judicial review where an appeal or proceeding has been referred under these provisions.

FMT's Regulatory Jurisdiction

34. The final substantive amendments relate to the FMT's jurisdiction under Article 56 and the accompanying powers in Article 57 of the Markets Law. The DFSA is of the view that the FMT's principal role is as an enforcement and disciplinary financial markets tribunal. As such, the FMT should only hear and determine regulatory driven or regulatory relief related proceedings and not private inter-party disputes or appeals of DFSA Executive decisions.
35. The current reference in Article 56(2) of the Markets Law to "a proceeding between persons" and to "a commercial proceeding" in Articles 56(3) and 57(3)(e) of the Markets Law, may lead parties to incorrectly conclude that the FMT has jurisdiction to hear and determine private inter-party disputes. This was not the legislative intent. The nature of private disputes is such that the adjudicating body, in addition to determining liability, will invariably be asked to assess and award damages. The DFSA believes that this is the role of the DIFC Court, which has the jurisdiction and necessary powers to properly adjudicate private inter-party disputes.
36. Accordingly, the DFSA is proposing amendments to remove any suggestion that would lead a person to conclude that the FMT's jurisdiction includes the determination of private inter-party disputes even though they may be related to the provision of some financial service in the DIFC.
37. The DFSA is also proposing to amend Articles 56 and 57 of the Markets Law to clarify that the FMT's jurisdiction is restricted to FMT regulatory proceedings, which does not include the determination of appeals of DFSA Executive decisions, private inter party or commercial disputes. The words "commercial proceedings" and "proceedings between persons" will be deleted and replaced with "Financial Market Tribunal proceedings".
38. A Financial Market Tribunal proceeding under this Part is intended to include proceedings brought by the DFSA as well as proceedings brought by a person seeking relief which is regulatory in nature as opposed to the kind of relief sought by parties in a private dispute. For example, a proceeding brought by a person seeking an order from the Financial Markets Tribunal under Article 57(3)(b) requiring a respondent to comply with the Offered Securities Rules or the Takeover Rules relating to an issue arising out of a takeover, Takeover Offer, merger or acquisition of shares under Article 56(2)(c), would be considered to be a Financial Market Tribunal proceeding.
39. To ensure that the proceedings before the Financial Markets Tribunal remain 'regulatory' driven, the DFSA is proposing that no proceedings may be brought by a person under Article 56 without the consent of the DFSA or the Financial Market Tribunal.

Exchange Appeals

40. Under the DIFX's Rules, certain decisions made by the DIFX are subject to an internal appeal process. Under these same Rules, parties aggrieved by a decision of the DIFX must complete the appeals process provided by the Exchange Rules before pursuing any further right of review or appeal to a tribunal or court that may be prescribed in DIFC Law or DFSA Rules.
41. When the DIFX became authorised, the DFSA amended the provisions in the AMI Module of the Rulebook to allow for a limited right of appeal from Exchange decisions to the FMT as long as the DIFX internal appeal process had been exhausted first.
42. The DFSA is of the view that the Exchange internal appeal process coupled with the appeal to the FMT effectively gives aggrieved parties the right to two appeals or reviews. Therefore, a further full appeal to the DIFC Court from the decision of the FMT is unwarranted.
43. Accordingly, the DFSA is proposing to amend Article 56(5) of the Markets Law to provide that determinations of the FMT regarding appeals of Exchange decisions are final and may not be appealed further to the DIFC Court.

Miscellaneous

44. The DFSA is proposing to amend Article 9(2) of the Markets Law to delete the requirement on the DFSA to "obtain the approval of the Board of Directors" before issuing a direction to an AMI, as there is a right of appeal to the RAC for any such direction under Article 9(1). Requiring the approval of the Board defeats the purpose of having a right to appeal to RAC. The DFSA is also proposing to amend Article 9(3) of the Markets Law to provide a right of appeal to RAC for directions made to an AMI by the DFSA under Article 9(2).

Download this Consultation Paper in PDF format.

Download Annex A — Draft Amendments to the Regulatory Law and Markets Law in PDF format.