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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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Collective Investment Rules (CIR) [VER25/07-19]
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  • Part 5 Rules Specific to Different Types of Domestic Funds

    • Guidance

      Article 13 of the Law defines FundsG as either Domestic FundsG or Foreign FundsG . Article 15 of the Law further defines Domestic FundsG as falling into three categories, i.e. Public FundsG , Exempt FundsG and Qualified Investor FundsG . While the core requirements in CIR Part 4 of this module are of common application to most types of Domestic FundsG , the requirements in this Part apply only to certain types of Domestic FundsG , depending on whether they are Public FundsG , Exempt FundsG or Qualified Investor FundsG . Where a certain type of FundG is also a specialist class of FundsG , there are additional requirements that are prescribed in CIR Part 6.

      Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
      [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

    • CIR 10 Requirements Specific to Public Funds

      • CIR 10.1 Application

        • CIR 10.1.1

          (1) This chapter applies to a Fund ManagerG and TrusteeG of a Domestic FundG which is a Public FundG , and also to PersonsG providing the oversight function for such a FundG .
          (2) A Fund ManagerG and TrusteeG of a Public FundG are not subject to the oversight requirement in (1) if the Fund'sG investments are limited to those that require passive management and the Fund'sG systems and controls contain adequate measures to address any risks arising in that context.
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 10.1.1 Guidance

            FundsG are passively managed if they are investing in products such as index tracking products.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • CIR 10.1.2

          A reference in this chapter to:

          (a) a "Fund ManagerG " or "TrusteeG " includes a reference to a PersonG proposing to be the Fund ManagerG or TrusteeG of a Domestic FundG ;
          (b) a "FundG " includes a reference to a FundG registered or seeking to be registered as a Public FundG ; and
          (c) a reference to a "PersonG providing the oversight function" includes a reference to an individual or a body corporate appointed or to be appointed as a PersonG providing oversight function for a FundG .
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 10.2 Registration of Public Funds

        • The Application for Registration

          • CIR 10.2.1

            (1) An application pursuant to Article 28 of the Law for the registration of a Public FundG must be made to the DFSAG by the Body CorporateG which is to be the Fund ManagerG of a Domestic FundG . If the FundG is an Investment TrustG , then the TrusteeG and Fund ManagerG must jointly apply.
            (2) The Fund ManagerG and, if applicable, the TrusteeG must complete and submit the appropriate form or forms in AFN.
            (3) In addition to the requirements of Article 28(4) of the Law, the application must be accompanied by certification by the Fund'sG legal advisers to the effect that:
            (a) the ConstitutionG of the FundG complies with the requirements prescribed under the Law and under these RulesG ;
            (b) the ProspectusG complies with the requirements prescribed under the Law and under these RulesG ; and
            (c) if the FundG is managed by an External Fund ManagerG , the requirements in CIR section 6.1 are met.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 10.2.2

            In assessing an application for registration, the DFSAG may:

            (a) make any enquiries which it considers appropriate, including enquiries independent of the Fund ManagerG and TrusteeG ; or
            (b) require the Fund ManagerG or TrusteeG to provide further information.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Requirements for Registration

          • CIR 10.2.3

            Subject to the provisions of these RulesG , a FundG will only be registered by the DFSAG if it satisfies the following conditions:

            (a) the Fund has one of the permitted forms for Domestic Funds under Article 26(1)of the Law;
            (b) the registration or other legal formalities relating to the formation of the FundG as referred to in (a) are completed;
            (c) the FundG has appointed to it a Fund ManagerG which is:
            (i) authorised by the DFSAG under its LicenceG to carry on the Financial ServiceG of Managing a Collective Investment FundG ; or
            (ii) an External Fund ManagerG as defined in Article 20(5) of the Law;
            (d) the FundG , if it is an Investment TrustG , has a TrusteeG which meets the requirements in the Investment Trust Law 2006;
            (e) the Fund ManagerG has made satisfactory arrangements in relation to the oversight function of the FundG and the delegation of the activity of Providing CustodyG as required under the Law and this module;
            (f) the Fund ManagerG has appointed an AuditorG of the FundG who complies with the requirements in CIR section 9.3; and
            (g) the name of the FundG is not undesirable or misleading and its purpose is reasonably capable of being successfully carried into effect.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 10.2.3 Guidance

              1. Article 26(1) of the Law requires every Domestic FundG to have the form of an Investment CompanyG , Investment PartnershipG or Investment TrustG . An Investment CompanyG can also take the form of a Protected Cell CompanyG (PCC).
              2. In the case of an Investment CompanyG (including a PCCG ) or Investment PartnershipG , the legal formalities relating to formation of the FundG involves registration by the Company RegistrarG of the Investment CompanyG or Investment PartnershipG which is to be the FundG vehicle. In the case of an Investment TrustG , the legal formalities relating to the formation of the trust involve the execution by the Fund ManagerG and the TrusteeG of the relevant trust deed pursuant to the requirements in the Investment Trust Law of 2006.
              3. Under CIR Rule 8.2.2(2), the Fund ManagerG of an Investment CompanyG or Investment PartnershipG must delegate the function of holding safe custody of Fund PropertyG (i.e. the Financial ServiceG of Providing CustodyG in relation to Fund PropertyG ) to an Eligible CustodianG . In the case of an Investment TrustG , the TrusteeG of the FundG provides the safe custody function relating to Fund PropertyG . However, this obligation does not apply in the case of certain types of specialist FundsG where alternative safe custody arrangements are permitted (see the custody requirements for Private Equity FundsG and certain types of Property FundsG in Rules CIR 13.3.1, CIR 13.4.2, CIR 13.4.2A and CIR 13.4.2B).
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Rejection of an Application

          • Guidance

            Under Article 30(1) of the Law, the DFSAG may refuse to grant an application for the registration of a FundG if it is not satisfied that the requirements referred to in Article 28 of the Law have been met.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

        • Granting Registration

          • Guidance

            1. Under Article 31 of the Law, once the DFSAG grants registration to a FundG , it will without undue delay inform the relevant applicant in writing of:
            a. such decision; and
            b. the date on which the registration shall be deemed to take effect.
            2. The DFSAG maintains a list of Public FundsG which have been registered on its Public RegisterG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Withdrawal of Registration

          • Guidance

            Under Article 32 of the Law, the DFSAG may withdraw the registration of a FundG in specified circumstances.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Reinstatement

          • Guidance

            The DFSAG may reinstate the registration of a FundG pursuant to Article 33 of the Law if it is satisfied that the FundG should not have been deregistered or if the defect that led to registration being withdrawn has been remedied.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 10.3 Oversight Arrangements for Public Funds

        • CIR 10.3 Guidance

          Chapter 2 of the Law (see Articles 3942) sets out the general requirements relating to the oversight arrangements which a Public FundG must have, including the powers and duties of the PersonsG appointed to a Public FundG to provide the oversight function. The RulesG in this section provide further detailed requirements relating to that function.

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Permitted Oversight Arrangements

          • CIR 10.3.1

            The following oversight arrangements are hereby prescribed by the DFSAG for the purposes of Article 39(1)(a) of the Law:

            (a) an Oversight CommitteeG comprising at least three individuals each of whom meets the suitability criteria prescribed in CIR Rule 10.3.2; or
            (b) the Eligible CustodianG or TrusteeG of the FundG , where the individuals undertaking the primary responsibility for the oversight function meet the suitability criteria prescribed in CIR Rule 10.3.2.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.1 Guidance

              1. Article 39(1)(a) of the Law requires the Fund ManagerG of a Domestic FundG which is a Public FundG to establish and maintain one of the permitted oversight arrangements prescribed by the DFSAG . Accordingly, such a Fund ManagerG must appoint one of the oversight arrangements specified in CIR Rule 10.3.1 to every Public FundG which it manages.
              2. The membership of the Oversight CommitteeG may comprise individuals including but not limited to members of the board of directors of the Fund ManagerG or that of the FundG , or the individual directors of the Corporate Director, or the members of the General PartnerG of an Investment PartnershipG , or external experts, provided such individuals can meet the suitability criteria prescribed in CIR Rule 10.3.2(1). The criteria include a test of independence.
              3. For example, for an individual such as a member of the board of directors of the Fund ManagerG to be able to meet the independence test, the starting point is that such an individual would need to be a non-executive member of the Fund Manager'sG board. But that alone may not be sufficient, as the independence requirement has a range of other elements against which such an individual's ability to be independent of the Fund ManagerG is assessed. See Article 42 of the Law and CIR Rule 10.3.2. The other elements of the suitability test encompass a fit and proper test and relevant expertise. These too need to be satisfied by such individuals.
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Suitability Criteria for Persons Providing Oversight Function

          • CIR 10.3.2

            (1) For the purposes of CIR Rule 10.3.1, a PersonG undertaking the oversight function meets the relevant criteria if that PersonG :
            (a) is suitably qualified;
            (b) is fit and proper; and
            (c) meets the independence criteria in Article 42 of the Law.
            (2) A Fund ManagerG must, in the case of each individual to be appointed as a member of an Oversight CommitteeG referred to in CIR Rule 10.3.1(a), undertake appropriate due diligence to ascertain whether the individual meets the suitability criteria in (1).
            (3) A Fund ManagerG must, where an Eligible CustodianG or TrusteeG is to be appointed as the oversight provider of the FundG , undertake appropriate due diligence to ascertain whether the individual meets the suitability criteria in (1) in respect of those individuals within the organisation of the Eligible CustodianG or TrusteeG who will be undertaking the primary responsibility for performing the oversight function for the FundG .
            (4) A Fund ManagerG must ensure that there is a written agreement:
            (a) by which an individual is appointed to an Oversight CommitteeG or the TrusteeG or Eligible CustodianG is appointed to the oversight function of the FundG , as is relevant; and
            (b) which contains express provisions that the appointee agrees to discharge the oversight function in accordance with the requirements in the Law and this module.
            (5) If requested by the DFSAG , a Fund ManagerG must provide to the DFSAG any information relating to the appointment or intended appointment of a Person to provide the oversight function for the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.2 Guidance

              1. The Guidance under Appendix 6 (App6) sets out matters which a Fund ManagerG should take into account when assessing the fitness and propriety of an individual who is to be appointed to carry out the Fund'sG oversight function.
              2. In the case of a TrusteeG or Eligible CustodianG appointed to provide the oversight function, a Fund ManagerG should, before making such an appointment, identify the most senior individuals within the organisation who will carry the primary responsibility for the oversight function. The suitability assessment should then be applied to each such individual.
              3. TrusteesG are required to be independent of the Fund ManagerG (see Article 19 of the Investment Trust law 2006, which is incorporated in the independence requirement for oversight providers under Article 42(1)(f) of the Law). However, if the primary responsibility for providing oversight function within a TrusteeG rests on individuals other than its board members, the Fund ManagerG should assess whether such individuals possess the required degree of independence from the Fund ManagerG in assessing their fitness and propriety to carry out the oversight function effectively. A Fund ManagerG should, when making that assessment, focus particularly on whether the PersonsG providing the oversight function have access to sufficient resources to perform their duties objectively and independently of the Fund ManagerG .
              4. In assessing the competence of a prospective appointee, a Fund ManagerG should:
              a. obtain details of the knowledge and skills of the individual in relation to the knowledge and skills required for the role;
              b. take reasonable steps to verify the relevance, accuracy and authenticity of any information acquired;
              c. determine whether the individual holds any relevant qualifications with respect to the functions to be performed; and
              d. determine the individual's relevant experience.
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 10.3.3

            (1) The systems and controls which a Fund ManagerG is required to have in place must include adequate measures to monitor whether the PersonsG appointed to provide the oversight function for the FundG meet the suitability criteria specified in CIR Rule 10.3.2(1) on a continuing basis.
            (2) If a PersonG appointed to provide the oversight function for the FundG is either unable to fulfil his duties or no longer meets the suitability criteria in CIR Rule 10.3.2(1), the Fund ManagerG must, within 21 days of the event causing such inability, dismiss and replace that PersonG , subject to the requirement in (4).
            (3) If a PersonG appointed to provide the oversight function for the FundG resigns from or otherwise vacates that position, the Fund ManagerG must, within 60 days of the event causing the vacancy, appoint a replacement, subject to the requirement in (4).
            (4) An appointment made under (2) or (3) must meet the relevant requirements relating to the oversight arrangement of the FundG as specified in CIR Rule 10.3.1 as is relevant to that particular FundG .
            (5) The Fund ManagerG must notify the DFSAG and, in the case of an Investment TrustG where the TrusteeG is not the appointed oversight provider for the FundG , the TrusteeG , of the matters referred to in this RuleG , giving reasons for the relevant cessation and replacement of the oversight provider.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • General Oversight Duties

          • CIR 10.3.4

            The PersonsG providing the oversight function must:

            (a) monitor whether the Fund ManagerG :
            (i) is managing the FundG in accordance with the ConstitutionG and the most recent ProspectusG of the FundG , including in particular, any investment and borrowing limitations, requirements relating to the valuation of Fund PropertyG and any other requirements or restrictions imposed on the FundG under the Law or any RulesG in this module;
            (ii) is complying with any terms and conditions on the Fund Manager'sG LicenceG , particularly with respect to the management of the FundG ; and
            (iii) if it is an External Fund ManagerG , is complying with the specific requirements that apply to such a PersonG by virtue of being an External Fund ManagerG ;
            (b) assess whether the Fund Manager'sG systems and controls, particularly those relating to risk management and compliance, operate as intended and remain adequate;
            (c) report to the Fund ManagerG on its findings, including any actual or potential breaches or inadequacies in relation to the matters specified in (a) and (b), as soon as such breaches or inadequacies are identified or suspected; and
            (d) report to the DFSAG if:
            (i) the Fund ManagerG has failed, or is reasonably likely to fail, to take appropriate action to rectify or remedy a matter reported to it within 30 days of that matter being so reported; and
            (ii) that PersonG believes on reasonable grounds that the matter has had, or is likely to have, a materially adverse impact on the interests of the UnitholdersG of the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.4 Guidance

              External Fund ManagersG are subject to specific requirements, for example in CIR section 6.1.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Proceedings of the Oversight Provider

          • CIR 10.3.5

            The PersonsG providing the oversight function for a FundG must conduct and regulate their proceedings in such a manner so as to be able to discharge the duties and responsibilities relating to the oversight function efficiently and effectively in accordance with the requirements of the Law and this module, and in the case of a TrusteeG , the requirements in the Investment Trust Law 2006.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.5 Guidance

              1. The PersonsG providing the oversight function should hold in the DIFCG such number of meetings during every annual accounting period as are considered appropriate for the nature and scale of the activities of the FundG .
              2. The PersonsG providing the oversight function should keep minutes of their meetings and records of their reports and recommendations for a minimum of six years.
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Principles and Disclosure of Interests

          • CIR 10.3.6

            Each individual appointed to carry out the oversight function for a FundG , in carrying out his oversight functions, must abide by the four principles set out in Rules CIR 10.3.7 to CIR 10.3.10. These principles apply:

            (a) in the case of an Oversight CommitteeG referred to in CIR Rule 10.3.1(a), to each member of that CommitteeG ; and
            (b) where a TrusteeG or Eligible CustodianG is appointed for providing the oversight function for a FundG , to each individual responsible for carrying out the oversight function for the FundG . .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.6 Guidance

              1. The principles do not apply to an individual in respect of any other functions he may carry out, although his conduct in those functions may be relevant to his fitness and propriety.
              2. Breaching a principle makes an individual liable to disciplinary action and may indicate that he is no longer fit and proper to perform an oversight function and the DFSAG may consider exercising its power under Article 39(2) of the Law to object to the appointment and require the Fund ManagerG to appoint a replacement.
              3. The onus will be on the DFSAG to show that he is culpable, taking into account the standard of conduct required under the principle in question. In determining whether or not the particular conduct of an individual complies with the principles, the DFSAG will take into account whether that conduct is consistent with the requirements and standards relevant to an individual's role and the information available to him.
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

        • Principle 1 - Integrity

          • CIR 10.3.7

            An individual must observe high standards of integrity and fair dealing in carrying out every oversight function and disclose to the Oversight CommitteeG or the senior persons responsible within the TrusteeG or Eligible CustodianG for the discharge of the oversight function any direct or indirect financial interest that he has or is likely to have in a matter that is being considered, or about to be considered by that committee or those persons if his interest could conflict with the proper performance of his duties in relation to the consideration of the matter.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Principle 2 - Due skill, Care and Diligence

          • CIR 10.3.8

            An individual must act with due skill, care and diligence in carrying out every oversight function.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Principle 3 - Market Conduct

          • CIR 10.3.9

            An individual must observe proper standards of conduct in financial markets in carrying out every oversight function.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Principle 4 - Relations with the DFSA

          • CIR 10.3.10

            An individual must deal with the DFSAG in an open and co-operative manner and must disclose appropriately any information of which the DFSAG would reasonable be expected to be notified.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Systems and Controls Relating to Oversight

          • CIR 10.3.11

            (1) Without limiting the generality of the obligation under Article 38(1) of the Law and any requirements relating to systems and controls set out in the RulesG , the systems and controls established and maintained by the Fund ManagerG must be adequate to ensure that the PersonsG providing the oversight function:
            (a) have adequate resources and access to accurate, timely and comprehensive information relating to the management of the FundG to be able to effectively monitor and assess the matters specified in CIR Rule 10.3.4(a) and (b); and
            (b) can report any actual or suspected compliance breaches or inadequacies that are identified by such PersonsG to the Fund ManagerG as required under CIR Rule 10.3.4(c) and, for this purpose, have recourse to the Fund Manager'sG Governing BodyG or any other relevant committee established by that Governing BodyG where relevant.
            (2) The Fund ManagerG must also ensure that its systems and controls make provision to enable:
            (a) the Compliance OfficerG to have unrestricted access to the PersonsG providing the oversight function and, to their reports and recommendations;
            (b) the Fund ManagerG to promptly act upon and remedy, to the satisfaction of the PersonsG providing the oversight function, any matter identified and reported to it by such PersonsG ; and
            (c) the PersonsG providing the oversight function to report to the DFSAG of any compliance breaches or inadequacies that are reported to the Fund ManagerG which are not remedied within the period specified in CIR Rule 10.3.4(d).
            (3) The monitoring and reporting processes and procedures in (1) and (2) must be approved by the PersonsG providing the oversight function before implementation.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.11 Guidance

              The nature and extent of the systems and controls will depend upon a variety of factors including the nature, size and complexity of the Fund'sG operations. While all Fund ManagersG and appointees, irrespective of size, legal structure or organisation need to comply with this section, the DFSAG will take into account these factors and the differences that exist between FundsG when assessing the adequacy of a Fund Manager'sG systems and controls. Nevertheless, neither these factors nor the differences relieve a Fund ManagerG or appointees from compliance with their regulatory obligations.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 10.3.12

            (1) The PersonsG appointed to perform the oversight function must report to the Fund ManagerG as to whether the Fund Manager'sG systems and controls relating to the oversight function are operating as intended and remain adequate at least quarterly at a board meeting of the Fund ManagerG .
            (2) Where an Eligible CustodianG or TrusteeG has been appointed as the PersonG providing the oversight function, the Fund ManagerG must provide to that PersonG , and to the Fund'sG Governing BodyG , a copy of the Fund'sG most recent internal audit report and any compliance report as soon as such report is available to the Fund ManagerG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Oversight Report

          • CIR 10.3.13

            (1) The PersonG providing the oversight function of a Public FundG must make a report to UnitholdersG of the FundG which must be included in the Fund'sG annual report referred to in CIR Rule 9.4.2.
            (2) The oversight report must contain:
            (a) a description, which may be in summary form, of the duties of the PersonG carrying out the oversight functions and in respect of the safekeeping of the Fund PropertyG ; and
            (b) a statement whether, in any material respect:
            (i) the issue, sale, redemption and cancellation, and calculation of the price of the UnitsG and the application of the Fund'sG income, have not been carried out in accordance with the RulesG and, the ConstitutionG ; and
            (ii) the investment and borrowing powers and restrictions applicable to the FundG including those specified in CIR section 10.5, if those have been exceeded.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Co-operation with Oversight Providers

          • CIR 10.3.14

            A Fund ManagerG must take reasonable steps to ensure that it and its EmployeesG and those of the FundG :

            (a) provide such assistance as the PersonsG providing the oversight function reasonably require to discharge their duties;
            (b) give the PersonsG providing the oversight function right of access at all reasonable times to relevant records and information relating to the FundG ;
            (c) do not interfere with the ability of the PersonsG providing the oversight function to discharge their duties;
            (d) do not provide false or misleading information to the PersonsG providing the oversight function; and
            (e) report to the PersonsG providing the oversight function any matter which may significantly affect the financial position of the FundG or which is a breach of the Law or the RulesG in this module.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Record Keeping

          • CIR 10.3.15

            (1) A Fund ManagerG must keep records of:
            (a) the due diligence process it has undertaken to assess whether the PersonsG appointed for the oversight function meet the suitability criteria in CIR Rule 10.3.2(1); and
            (b) the matters identified and reported to it by the PersonsG providing the oversight function under CIR Rule 10.3.4(c) and any remedial measures adopted by it to address such matters.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 10.4 Prospectus Requirement for Public Funds

        • CIR 10.4 Guidance

          The disclosure requirements relating to a ProspectusG that apply to a Public FundG are somewhat more extensive than the ProspectusG disclosure that apply to other types of FundsG , in particular, Exempt FundsG and Qualified Investor FundsG . However, as ProspectusG disclosure is a matter closely linked to the marketing of FundsG , ProspectusG requirements relating to the relevant types of FundsG are set out in CIR Part 7 of this module, which deals with the Offer of UnitsG of FundsG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
          [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

      • CIR 10.5 Investment and Borrowing Requirements for Public Funds

        • Application

          • CIR 10.5.1

            This section applies to the Fund ManagerG of a Domestic FundG which is a Public FundG , an Eligible CustodianG and, where appropriate, a TrusteeG , and, to PersonsG appointed to perform the oversight function for such a FundG , to the extent specified in CIR Rule 10.3.4.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Spread of Risk and Protection of Fund Property

          • CIR 10.5.2

            A Fund ManagerG must take reasonable steps to ensure that the Fund PropertyG of a Public FundG provides a spread of risk that is consistent with the investment objectives and policy of the FundG as stated in its most recently published ProspectusG , and in particular, any investment objectives as regards return to the UnitholdersG whether through capital appreciation or income or both.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.5.2 Guidance

              The investment policy of a Public FundG can provide a wide or restrictive spread of risk, provided it is consistent with the investment objectives and policy of the FundG as stated in the most recently published Fund ProspectusG of that FundG . For example, if a Fund's investment objectives and policy are to invest in a single asset (a single property FundG ), or a single asset class (e.g. shares in emerging markets) or a single sector (mining or technology) that policy must be properly disclosed in the ProspectusG , along with the risks associated in the particular asset or asset class. See also the additional disclosure required under CIR Rules 14.4.3 and 14.4.4 in the ProspectusG of a Public FundG that is a Property FundG .

              Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

          • CIR 10.5.3

            (1) A Fund ManagerG must avoid the Fund PropertyG being used or invested contrary to any provision in this section.
            (2) On becoming aware of any breach of a RuleG in this section, a Fund ManagerG must take action, at its own expense, to rectify that breach.
            (3) A Fund ManagerG must take the action in (2) immediately, except in circumstances where it decides doing so would not be in the best interests of UnitholdersG , in which case the action must be taken as soon as such circumstances cease to apply.
            (4) A Fund ManagerG must not postpone taking action in accordance with (2) unless the PersonsG providing oversight functions have given their consent.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Investment in Other Funds

          • CIR 10.5.4

            A FundG may invest in UnitsG of another FundG , except where otherwise provided in the RulesG in this module, only where the Fund ManagerG has taken reasonable care to determine, before investing in that other FundG , it:

            (a) is the subject of an independent annual audit conducted in accordance with IFRS or US GAAP;
            (b) has mechanisms in place to enable UnitholdersG to redeem their UnitsG within a reasonable time if it is an Open-ended FundG ;
            (c) is prohibited from having more than 20% of its value in the UnitsG of other FundsG ; and
            (d) has a proper and disclosed basis for asset valuation and the pricing of UnitsG in that FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Transactions in Derivatives

          • CIR 10.5.5

            (1) The total exposure of a Public FundG to DerivativesG may not exceed the net asset value of the Fund PropertyG .
            (2) The Fund Manager'sG systems and controls must include adequate risk management processes which enable it to monitor and measure as frequently as appropriate the risk of a Fund'sG DerivativeG positions and their contribution to the overall risk profile of the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.5.5 Guidance

              1. There are additional requirements relating to liquidity risk management, including liquidity risks resulting from the use of certain classes of assets (such as DerivativesG ) giving rise to credit or counterparty exposure in Open-ended Domestic FundsG (see CIR Rule 8.6A.1(2)).
              2. An Exchange Traded FundG (ETF) which is a 'synthetic ETF' (see Guidance items 11–14 under CIR Rule 13.9.6 for descriptions of different types of synthetic ETFs) would use DerivativesG , such as a total return swap, to replicate the performance of the specified index or other benchmark it tracks. The ProspectusG of a synthetic ETF is required to include details relating to counterparty and collateral-related risks associated with the use of synthetic replication of the performance of the relevant underlying index or benchmark through the use of DerivativesG (see CIR Rule 14.4.8(i)).
              Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Stock Lending and Borrowing

          • CIR 10.5.6

            (1) Subject to the Fund'sG ConstitutionG and its most recent ProspectusG , the Fund ManagerG , or the Eligible CustodianG or TrusteeG at the request of the Fund ManagerG , may enter into:
            (a) stock lending arrangements in respect of any SecuritiesG forming the Fund PropertyG ; and
            (b) stock borrowing arrangements.
            (2) The Fund ManagerG must ensure that the value of any collateral for the stock lending arrangement is at all times at least equal to the value of the SecuritiesG transferred.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Borrowing

          • CIR 10.5.7

            (1) Subject to the Fund'sG ConstitutionG and its most recent ProspectusG , the Fund ManagerG , or the Eligible CustodianG or TrusteeG on the instructions of the Fund ManagerG , may borrow money for the use of the FundG on terms that the borrowing is to be repayable out of the Fund PropertyG .
            (2) The Fund ManagerG must ensure, except in the case of a Property FundG , that the Fund'sG borrowing does not on any day exceed 20% of the net asset value of the Fund PropertyG and must take reasonable care to ensure that arrangements are in place that will enable borrowings to be repaid to ensure such compliance.
            (3) Where the limit in (2) is breached, the Fund ManagerG must take immediate action to deal with that breach.
            (4) In this RuleG , "borrowing" also includes any arrangement including a combination of DerivativesG to achieve a temporary injection of money into the Fund PropertyG in the expectation that the sum will be repaid.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Investment in Real Property

          • CIR 10.5.8

            A Fund ManagerG of a FundG other than a Property FundG must before investing in Real PropertyG , appoint, with the approval of the PersonG providing the oversight function for the FundG , a ValuerG with relevant expertise who meets the requirements in CIR Rule 13.4.19 and likewise upon any vacancy to ensure that any property in the Fund PropertyG is expertly valued.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 10.5.9

            (1) The Fund ManagerG must ensure that the ValuerG appointed under CIR Rule 10.5.8 procures the proper valuation of all the property held within the Fund PropertyG , on the basis of a full valuation with physical inspection including, where the property is or includes a building, an internal inspection at least once a year.
            (2) For the purposes of (1), any inspection in relation to adjacent properties of a similar nature and value may be limited to that of only one such representative property.
            (3) The Fund ManagerG must, subject to (4), ensure that the ValuerG values the property, on the basis of a review of the last full valuation, at least every 6 months.
            (4) If any event occurs which may on reasonable grounds have a material effect on the valuation of the relevant property the Fund ManagerG must consult with the ValuerG with a view to arranging a fresh valuation before any UnitsG in the FundG are issued or redeemed after the date of the event.
            (5) The Fund ManagerG must require that any valuation by the Independent ValuerG is on the basis of an 'open market value' as defined in the ConstitutionG and ProspectusG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.5.9 Guidance

              The DFSAG would expect the Fund ManagerG to define 'open market value' to be based on an authoritative text such as the Royal Institute of Chartered Surveyors' Appraisal and Valuation Standards (fifth edition) ("Red Book") or similar practitioners text used by surveyors for the valuation to be a proper valuation under CIR Rule 10.5.9(5).

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

    • CIR 11 [Deleted]

      [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

      • CIR 11.1 [Deleted]

        [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

        • CIR 11.1.1 [Deleted]

          [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

      • CIR 11.2 [Deleted]

        • CIR 11.2 Guidance [Deleted]

          [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

        • CIR 11.2.1 [Deleted]

          [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

        • CIR 11.2.2 [Deleted]

          [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

          • CIR 11.2.2 Guidance [Deleted]

            [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

      • CIR 11.3 [Deleted]

        • CIR 11.3 Guidance [Deleted]

          [Deleted] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

    • CIR 12 Requirements Specific to Exempt Funds

      • CIR 12.1 Meeting the conditions to be Classified as an Exempt Fund

        • CIR 12.1 Guidance

          1. Article 16(2) of the Law provides that a Domestic FundG may be constituted as an Exempt FundG only if it satisfies all of the conditions in Article 16(4). Article 16(4) provides that an Exempt FundG must:
          a. have its UnitsG offered to persons only by way of a Private Placement;
          b. have only UnitholdersG each of whom meets the criteria to be classified as a Professional ClientG ; and
          c. have a minimum subscription of at least US$50,000 for a person to become a UnitholderG in the FundG ,
          and not satisfy the conditions in Article 16(5) to be a Qualified Investor FundG .
          2. Under Article 26(1) of the Law, an Exempt FundG is required to have one of the permitted forms, i.e. an Investment CompanyG , Investment PartnershipG or an Investment TrustG . However, certain types of Exempt FundsG which belong to a specialist class of FundsG may be permitted to use only some and not all the permitted forms. See CIR Part 6 for those variations.
          3. If an Exempt FundG can no longer meet the relevant conditions to be classified as an Exempt FundG , the Fund ManagerG of that FundG is required, under Article 34(3), to apply for the winding up of that FundG . Alternatively, the Fund ManagerG may have that FundG moved to the classification of a Public FundG , which requires the satisfaction of the requirements and formalities specific to that type of FundG . An Exempt FundG may also, if it wishes to, convert to a Qualified Investor FundG provided it meets the conditions applicable to a Qualified Investor FundG in Article 16(5) of the Law.
          4. In addition to the requirements specific to Exempt FundsG , such a FundG must also meet, except where otherwise provided, the other requirements that are common to all Domestic FundsG , which are set out in CIR Part 4 of this module.
          5. Units of Exempt FundsG can only be OfferedG by way of Private PlacementG and to Professional ClientsG , but must meet the additional criterion of a minimum subscription test of US$50,000. The definition of Professional ClientG is set out in Rule 1.3.1.
          6. Generally a firm will not be able to undertake mass marketing activities relating to UnitsG of Exempt FundsG because such marketing would not meet the Private PlacementG requirement, and would be likely to amount to a public offer, which can only be made in respect of a UnitG of a Public FundG .
          7. A Fund ManagerG of an Exempt FundG , which is structured as an Open-ended Fund, is required to comply with the requirements relating to adequate systems and controls to manage, among others, the liquidity risk. See CIR Rule 8.6A.1.
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
          [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
          [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • CIR 12.1.1

          (1) A FundG may be classified as an Exempt FundG only if it fulfils the criteria in Article 16(4) of the Law at the inception of the FundG and on an on-going basis.
          (2) A Fund ManagerG must ensure that a FundG which is or is intended to be established and operated as an Exempt FundG meets the criteria in Article 16(4) both at the inception of the FundG and on an on-going basis.
          (3) For the purposes of (2), where a Fund ManagerG makes arrangements with other Authorised FirmsG or PersonsG in other jurisdictions to OfferG to issue or sell the UnitsG of an Exempt FundG , then it must take reasonable steps to ensure that those Authorised FirmsG or other PersonsG do not OfferG to issue or sell the UnitsG in a manner that would result in a breach of the criteria in Article 16(4).
          (4) As soon as a Fund ManagerG becomes aware that an Exempt FundG it manages no longer meets or is likely to not meet the criteria in Article 16(4) of the Law, it must immediately:
          (a) commence proceedings relating to the winding up of the FundG , or alternatively, take necessary steps to have the FundG registered as a Public FundG ; and
          (b) notify the DFSAG of that fact and the measures it has taken and proposes to take under (a).
          (5) A Fund ManagerG of an Exempt FundG which is subject to the valuation requirement in CIR Rule 8.4.1(1) must appoint a Fund AdministratorG or a PersonG regulated by a Financial Services RegulatorG as the PersonG undertaking the valuation of that FundG .
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
          [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 12.1.2

            A Fund ManagerG of an Exempt FundG , when notifying the DFSAG pursuant to Article 34 of the Law, must also include:

            (a) a general description of the FundG including the nature of its investments and the intended size of the FundG in monetary terms;
            (b) if it is a Hedge FundG which has appointed a prime broker pursuant to CIR Rule 13.6.3:
            (i) the details relating to the identity of the prime broker and its RegulatorG ; and
            (ii) a legal certification that all the requirements in CIR Rule 13.6.3 relating to the use of prime brokers have been fully complied with by the Fund ManagerG ;
            (c) if it is an External FundG , the name of the jurisdiction in which the FundG is established or domiciled; and
            (d) if it is an External Fund ManagerG , the name of the jurisdiction in which that Fund ManagerG is domiciled, and the details of the Appointed Fund AdministratorG or TrusteeG to that FundG for the purposes of CIR Rule 6.1.3.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 12.2 Exempt Fund Prospectus

        • CIR 12.2 Guidance

          The disclosure requirements relating to a ProspectusG that apply to an Exempt FundG are different from the ProspectusG disclosure required for Public FundsG . As ProspectusG disclosure is a matter closely linked to the marketing of UnitsG of FundsG , ProspectusG requirements relating to the relevant types of FundsG are set out in CIR chapter 14.

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

    • CIR 12A Requirements Specific to Qualified Investor Funds

      • CIR 12A.1 Meeting the conditions to be classified as a Qualified Investor Fund

        • CIR 12A.1 Guidance

          1. Article 16(2) of the Law provides that a Domestic FundG may be constituted as a Qualified Investor FundG only if it satisfies all of the conditions in Article 16(5). Article 16(5) provides that a Qualified Investor FundG must:
          a. have its UnitsG offered to persons only by way of Private PlacementG ;
          b. have only UnitholdersG each of whom meets the criteria to be classified as a Professional ClientG ; and
          c. have an initial subscription to be paid by a person to become a UnitholderG in the FundG of at least US$500,000.
          2. The definition of "Professional Client" is set out in Rule 1.3.1.
          3. Generally a firm will not be able to undertake mass marketing activities relating to UnitsG of Qualified Investor FundsG because such marketing would not meet the Private PlacementG requirement, and would be likely to amount to a public offer, which can only be made in respect of a UnitG of a Public FundG .
          [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
          [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • CIR 12A.1.1

          (1) A FundG may be classified as a Qualified Investor FundG only if it fulfils the conditions in Article 16(5) of the Law at the inception of the FundG and on an on-going basis.
          (2) A Fund ManagerG must ensure that a FundG which is or is intended to be established and operated as a Qualified Investor FundG meets the conditions in Article 16(5) of the Law both at the inception of the FundG and on an on-going basis.
          (3) For the purposes of (2), where a Fund ManagerG makes arrangements with other Authorised FirmsG or PersonsG in other jurisdictions to OfferG to issue or sell the UnitsG of a Qualified Investor FundG , then it must take reasonable steps to ensure that those Authorised FirmsG or other Persons do not OfferG to issue or sell the UnitsG in a manner that would result in a breach of the conditions in Article 16(5) of the Law.
          (4) As soon as a Fund ManagerG becomes aware that a Qualified Investor FundG it manages no longer meets or is likely not to meet the conditions in Article 16(5) of the Law, it must immediately:
          (a) commence proceedings relating to the winding up of the FundG , or alternatively, take necessary steps to have the FundG reconstituted as an Exempt FundG or registered as a Public FundG ; and
          (b) notify the DFSAG of that fact and the measures it has taken and proposes to take under (a).
          [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

      • CIR 12A.2 Responsibilities of a Fund Manager of a Qualified Investor Fund

        • CIR 12A.2 Guidance

          1. While a Fund ManagerG of a Qualified Investor FundG is exempt from many of the detailed requirements applicable to Public FundsG and Exempt FundsG , it will continue to be subject to most of the main obligations of Fund ManagersG . Therefore, such a Fund ManagerG should be mindful that when managing a Qualified Investor FundG , it is subject to some of the overarching obligations applicable to Fund ManagersG , particularly:
          (a) Article 22 of the Law (Fund Manager's general duties and functions);
          (b) Article 38 of the Law and GEN chapter 5 (Systems and controls requirements); and
          (c) GEN section 4.2 (The Principles for Authorised Firms).
          2. For example, a Fund ManagerG of a Qualified Investor FundG needs to observe high standards of integrity and fair dealing, and apply due skill, care and diligence, in managing the FundG . Similarly, it must have adequate systems and controls to ensure that the affairs of the FundG are effectively managed, taking into account the nature, scale and complexity of the FundG 's operations and the investment objectives and needs of its investors.
          3. A Fund ManagerG of a Qualified Investor FundG , which is structured as an Open-ended Fund, is required to comply with the requirements relating to adequate systems and controls to manage, among others, the liquidity risk. See CIR Rule 8.6A.1.
          [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
          [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

      • CIR 12A.3 Custody of Fund Property

        • CIR 12A.3.1

          (1) For the purposes of Article 27(1)(e) of the Law, the Fund ManagerG of a Qualified Investor FundG that is not an Investment TrustG must ensure that the legal title to Fund PropertyG is registered with an Eligible CustodianG .
          (2) The requirement in Article 27(1)(e) of the Law does not apply to the Fund ManagerG of a Qualified Investor FundG if it is:
          (a) a Property FundG ;
          (b) a Private Equity FundG ; or
          (c) a FundG investing in an interest in the operation of a Real PropertyG asset (such as investment in an infrastructure project).
          (3) If the Fund ManagerG of a Qualified Investor FundG itself holds Fund PropertyG of a kind referred to in (2), it must have in place effective arrangements which ensure that the Fund PropertyG is not available to creditors in the event of the insolvency of the Fund ManagerG .
          [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
          [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

          • CIR 12A.3.1 Guidance

            1. Article 27(1)(e) of the Law requires a Domestic FundG that is not an Investment TrustG to have legal title to the Fund PropertyG registered with an eligible person (unless the Rules provide otherwise). Rule 12A.3.1(1) specifies that the person must be an Eligible CustodianG . Rule 12A.3.1(2) disapplies the requirement in relation to Fund PropertyG of certain kinds of Qualified Investor FundsG . Regardless of who holds title to Fund PropertyG , the Fund ManagerG must always ensure that, in accordance with Article 22(2)(f) of the Law, Fund PropertyG is clearly identified as such and held separately from property of the Fund ManagerG and any other FundsG .
            2. Where a FundG invests in infrastructure projects (for example, the development of public facilities such as roads, railways or bridges), the Fund ManagerG may hold self-custody of the Fund PropertyG which consists of the interest in the infrastructure project. However, where it does so, the Fund ManagerG is not exempt from the overarching obligation under CIR 8.2.2(1) to UnitholdersG of the QIF to ensure safe custody of the Fund PropertyG . This envisages proper identification and segregation of the interest in the infrastructure project as Fund PropertyG of the QIFG .
            [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]