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May 9 2016 onwards

9 May 2016 — DFSA Fines Former Licensed Directors

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Dubai, UAE, 9 May 2016: The Dubai Financial Services Authority (DFSA) has fined two individuals USD 56,000 (AED 205,520) each for failing to act with due skill, care and diligence, which caused an Authorised Firm to breach the DFSA's Anti-Money Laundering (AML) Rules.

Mr Raphael Lilla and Mr Kapparath Muraleedharan were both Licensed Directors and members of the Board of Directors at a DFSA Authorised Firm.

In August 2014, Mr Lilla and Mr Muraleedharan instructed the Firm's Senior Executive Officer and the Compliance and Money Laundering Reporting Officer to open three accounts for clients which had been assessed as “high risk”. Under the DFSA's AML Rules, the Firm was required to carry out Enhanced Customer Due Diligence on these clients before opening the accounts. However, Mr Lilla and Mr Muraleedharan dismissed the advice from the Senior Executive Officer and the Compliance and Money Laundering Reporting Officer that opening the accounts without the completion of Enhanced Customer Due Diligence would contravene the DFSA's AML Rules. In their senior positions as Board members of the Firm, Mr Lilla and Mr Muraleedharan told the staff to follow their instructions.

The DFSA's investigation also found that Mr Lilla and Mr Muraleedharan:

•   received confirmation from external legal counsel shortly after the accounts were opened that the advice of the Senior Executive Officer and the Compliance and Money Laundering Reporting Officer was correct;
•   were aware that opening the accounts in such circumstances did not comply with the Firm's account-opening policies; and
•   attempted to control the Senior Executive Officer and the Compliance and Money Laundering Reporting Officer from reporting the opening of two of the accounts to the DFSA.

Mr Lilla and Mr Muraleedharan accepted responsibility for their actions and agreed to settle the matter at an early stage following the conclusion of the investigation. The DFSA therefore reduced the fines by 20% under the DFSA's policy for early settlement. Were it not for discount for early settlement, Mr Lilla and Mr Muraleedharan would have each been fined USD 70,000 (AED 256,900).

The DFSA decided not to take any action against the Firm. After the accounts were opened, the Firm promptly notified the DFSA and other relevant authorities in the UAE that the accounts had been opened and also took steps to prevent the accounts from being used to receive funds.

Mr Ian Johnston, Chief Executive of the DFSA said: “Mr Lilla and Mr Muraleedharan were given clear advice that opening the accounts without completing the required due diligence would contravene the DFSA's Rules. They ignored this advice and caused the accounts to be opened, which put the Firm in breach of its regulatory obligations. The DFSA considers their actions to be serious and expects a higher standard of behaviour from persons in such senior positions.

The DFSA also commends the Senior Executive Officer and the Compliance and Money Laundering Reporting Officer for taking action to mitigate the risks to which the Firm was exposed, and for notifying the DFSA.”

A copy of the DFSA's Decision Notices can be found in the DFSA website under Regulatory Actions.


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Editor's notes:

The Dubai Financial Services Authority (DFSA) is the independent regulator of financial and ancillary services conducted in or from the Dubai International Financial Centre (DIFC), a purpose-built financial free-zone in Dubai. The DFSA's regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange and an international commodities derivatives exchange. In addition to regulating financial and ancillary services, the DFSA is responsible for supervising and enforcing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) requirements applicable in the DIFC. The DFSA has also accepted a delegation of powers from the DIFC Registrar of Companies (RoC) to investigate the affairs of DIFC companies and partnerships.

Ian Johnston was appointed as Chief Executive of the DFSA in June 2012. Ian joined the DFSA in November 2006, as a Managing Director, to head the Policy and Legal Services Division.

Ian was admitted to practice Law in Australia in the early 1980s and has spent most of his career in the private sector. He held a number of senior positions within the financial sector and was CEO of one of Australia's major Trustee Companies. During that time, Ian played a leading role in the Trustee industry and served on the National Council of the Trustee Corporations Association.

In 1999, Ian joined the Australian Securities and Investments Commission where he held the position of Executive Director, Financial Services regulation, and spent several terms as an acting Commissioner. In 2005, Ian took up a position with the Hong Kong Securities and Futures Commission as a Special Advisor.

Ian is a past Chairman of the Joint Forum, which comprise representatives of the major international regulatory standard-setters (IOSCO, IAIS and the Basel Committee). In November 2013, he was elected to the Steering Group of IOSCO's Growth and Emerging Markets Committee. He is also a member of the Financial Stability and Technical Committee (FSTC) of the IAIS, the global standard-setting body for insurance regulation, and was a member of the Board of Directors of the Financial Planning Standards Board (from Jan 2011 – Mar 2016).