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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
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Financial Markets Tribunal
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  • PIB 8 Group Risk

    • Introduction

      • PIB 8 Guidance

        1. This chapter deals with management of Group RiskG exposure of an Authorised FirmG . Group RiskG refers to the risk of potential losses incurred by an Authorised FirmG on account of its relationship with other members of its Financial GroupG , if it were to be part of one.
        2. This chapter includes requirements that an Authorised FirmG implement:
        a. an effective management framework for Group RiskG exposure;
        b. a specified methodology for the calculation of Financial Group Capital ResourcesG and Financial Group Capital RequirementsG .
        3. This chapter also includes requirements limiting Financial GroupG exposures and restrictions on the ownership or control of deposit-taking firms.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 8.1 Application

      • PIB 8.1.1

        (1) This section and PIB section 8.5 apply to an Authorised FirmG in any CategoryG .
        (2) Sections PIB 8.2 to PIB 8.4 apply only to an Authorised FirmG in CategoryG 1, 2 or 5.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 8.1.1 Guidance

          1. GroupG membership may be a source of both strength and weakness to an Authorised FirmG . The purpose of Group RiskG requirements is to ensure that an Authorised FirmG takes proper account of the risks related to the Authorised Firm'sG membership of a GroupG . The Group RiskG requirements form a key part of the DFSA'sG overall approach to prudential supervision.
          2. PIB section 8.5 imposes important restrictions on the ability of Authorised FirmsG in CategoryG 3A, 3B, 3C or 4, and non-regulated Financial InstitutionsG , to be a ParentG of an Authorised FirmG in CategoryG 1 or 5, or of a firm carrying on similar activities outside of the DIFCG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Requirements by the DFSA

        • PIB 8.1.2

          (1) The DFSAG may require an Authorised FirmG to:
          (a) form a Financial GroupG with any other entity within its GroupG ; or
          (b) include within its Financial GroupG any other entity within its GroupG ;
          where the DFSAG considers it necessary or desirable to do so in the interests of effective supervision of the Authorised FirmG .
          (2) An Authorised FirmG may, for the purposes of this section, exclude from its Financial GroupG any entity the inclusion of which would be misleading or inappropriate for the purposes of Financial GroupG supervision, provided the Authorised FirmG has obtained the DFSA'sG prior written approval.
          (3) An Authorised FirmG must provide to the DFSAG , if requested, any of the following information in relation to its GroupG or Financial GroupG :
          (a) details as to the entities within the GroupG or Financial GroupG ;
          (b) the structure of the GroupG or Financial GroupG ; and
          (c) the systems and controls in place to manage Group RiskG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 8.1.2 Guidance

            1. If more than one member of the same GroupG is subject to an obligation to provide information in respect of a position of the GroupG or Financial GroupG , one or more of those Authorised FirmsG may make application to the DFSAG for an appropriate waiver or modification.
            2. For the purposes of PIB Rule 8.1.2, the DFSAG would consider a range of factors when requiring an Authorised FirmG to form a Financial GroupG . These factors would include regulatory risk factors, including but not limited to, (direct and indirect) participation, influence or contractual obligations, interconnectedness, intra group exposures, intra group services, regulatory status and legal framework.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 8.2 Systems and Controls Requirements

      • PIB 8.2.1

        An Authorised FirmG in CategoryG 1, 2 or 5 that is a member of a GroupG must establish and maintain systems and controls for the purpose of:

        (a) monitoring the effect on the Authorised FirmG of:
        (i) its relationship with other members of its GroupG ;
        (ii) its membership in its GroupG ; and
        (iii) the activities of other members of its GroupG ;
        (b) monitoring compliance with Financial GroupG supervision requirements below, including systems for the production of relevant data;
        (c) monitoring funding within the GroupG ; and
        (d) monitoring compliance with Financial GroupG reporting requirements.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 8.2.1 Guidance

          For the purposes of the above requirement, an Authorised FirmG may take into account its position within its GroupG . For instance, it would be reasonable for a small Authorised FirmG within a larger GroupG to place some reliance on its parent to ensure that appropriate systems and controls are in place.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 8.2.2

        (1) An Authorised FirmG must have systems and controls to enable it to determine and monitor:
        (a) its Financial Group Capital RequirementG ; and
        (b) whether the amount of its Financial Group Capital ResourcesG is, and is likely to remain, greater than the amount of its Financial Group Capital RequirementG .
        (2) Such systems and controls must include an analysis of:
        (a) realistic scenarios which are relevant to the circumstances of the Financial GroupG ; and
        (b) the effects on the Financial Group Capital RequirementG and on the Financial Group Capital ResourcesG if those scenarios occurred.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 8.3 Financial Group Capital Requirements and Financial Group Capital Resources

      • PIB 8.3 Guidance

        By PIB Rule 8.1.1(2), this section applies to an Authorised FirmG in CategoryG 1, 2 or 5.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 8.3.1

        (1) The other RulesG in PIB section 8.3 do not apply to an Authorised FirmG if:
        (a) the Authorised Firm'sG Financial GroupG is already the subject of Financial GroupG prudential supervision by the DFSAG as a result of the authorisation of another Financial GroupG member;
        (b) the DFSAG has confirmed in writing, in response to an application from the Authorised FirmG , that it is satisfied that the Authorised Firm'sG GroupG is the subject of consolidated prudential supervision by an appropriate regulator; or
        (c) except where the DFSAG has directed the inclusion of an entity pursuant to PIB Rule 8.1.2, the percentage of total assets of Authorised FirmsG and Financial InstitutionsG in the Financial GroupG is less than 40% of the total Financial GroupG assets.
        (2) If an Authorised FirmG receives confirmation in writing from the DFSAG in accordance with (1)(b), it must immediately advise the DFSAG in writing if the circumstances upon which the confirmation was based change.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 8.3.2

        An Authorised FirmG must ensure at all times that its Financial Group Capital ResourcesG , as calculated in PIB Rule 8.3.4, are equal to or in excess of its Financial Group Capital RequirementG as calculated in PIB Rule 8.3.3.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 8.3.2 Guidance

          If an Authorised FirmG breaches PIB Rule 8.3.2, the DFSAG will take into account the full circumstances of the case, including any remedial steps taken by another regulator or the Authorised FirmG , in determining what enforcement action, if any, it will take.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Financial Group Capital Requirement

        • PIB 8.3.3

          (1) An Authorised FirmG in CategoryG 1, 2 or 5 must calculate its Financial Group Capital RequirementG by applying the accounting consolidation method, which calculates the Capital RequirementG of the Financial GroupG based on the Financial Group'sG consolidated financial statements, and using applicable prudential RulesG in PIBG .
          (2) For the purposes of this RuleG , the consolidated financial statements of the Financial GroupG must be prepared in accordance with International Financial Reporting StandardsG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Financial Group Capital Resources

        • PIB 8.3.4

          (1) An Authorised FirmG in CategoryG 1, 2 or 5 must calculate its Financial Group Capital ResourcesG by applying either of the following methods, excluding those amounts referred to in PIB Rule 8.3.5:
          (a) the accounting consolidation method, which calculates the Capital ResourcesG of the Financial GroupG based on the Financial Group'sG consolidated financial statements; or
          (b) the aggregation method, which is the sum of:
          (i) the Capital ResourcesG of the ParentG of the Financial GroupG ;
          (ii) subject to (2), the Capital ResourcesG of any Authorised FirmsG and Financial InstitutionsG included in the Financial GroupG ; and
          (iii) the Financial Group'sG proportionate share of Capital ResourcesG in Financial InstitutionsG not included in the Financial GroupG in which any member of the Financial GroupG has a participation.
          (2) For the purposes of (1)(b)(ii), an investment by one Financial GroupG member in another must not be included.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 8.3.4 Guidance

            The calculation of Financial Group Capital ResourcesG is subject to the provisions in part 3 of PIB chapter 3.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 8.3.5

          When calculating the Financial Group Capital ResourcesG of a Financial GroupG , an Authorised FirmG must not include Capital ResourcesG or Adjusted Capital ResourcesG (as the case may be) of subsidiaries or participations of that Financial GroupG to the extent that those Capital ResourcesG or Adjusted Capital ResourcesG :

          (a) exceed the entity requirement in respect of that subsidiary or participation, calculated in accordance with PIB Rule 8.3.3; and
          (b) are not freely transferable within the Financial GroupG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 8.3.5 Guidance

            1. Because the Financial Group Capital RequirementG set out in PIB Rule 8.3.3 includes Capital RequirementsG in respect of GroupG entities, Capital ResourcesG may be included in the calculation of Financial Group Capital ResourcesG to the extent of those requirements. Capital that is surplus to those requirements is, however, subject to an additional condition before it may be taken into account for the purposes of Financial GroupG capital adequacy.
            2. In general, Capital ResourcesG or Adjusted Capital ResourcesG are considered not to be freely transferable if they are subject to a legal or constructive limitation on their transferability, whether that transfer would be made by dividend, return of capital or other form of distribution. Examples of relevant limitations might include obligations to maintain minimum Capital RequirementsG to meet domestic solvency requirements, or to comply with debt covenants.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 8.3.6

          Deductions for Qualifying HoldingsG under PIB section 3.17 may be calculated based on the Group'sG total T1 and T2 Capital.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 8.4 Financial Group Concentration Risk Limits

      • PIB 8.4.1

        An Authorised FirmG in CategoryG 1, 2 or 5 must ensure that its Financial GroupG ExposureG , including the Financial Group'sG PSIAu'sG , to a CounterpartyG or group of Closely RelatedG CounterpartiesG does not exceed 25% of its Group'sG Capital ResourcesG .

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 8.4.2

        An Authorised FirmG in CategoryG 1, 2 or 5 must ensure that the sum of its Financial GroupG Large ExposuresG , including the Financial Group'sG PSIAu'sG , to a CounterpartyG or group of Closely RelatedG CounterpartiesG does not exceed 800% of its Financial Group's Capital ResourcesG .

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 8.5 Restrictions on Ownership or Control

      • PIB 8.5 Guidance

        By PIB Rule 8.1.1(1), this section applies to an Authorised FirmG in any CategoryG .

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Parents of Category 1 and 5 Authorised Firms

        • PIB 8.5.1

          (1) No entity other than one of the following may be the ParentG of, or any of the ParentsG of, an Authorised FirmG in CategoryG 1 or 5:
          (a) another Authorised FirmG in CategoryG 1 or 5; or
          (b) a Regulated Financial InstitutionG licensed to carry on the activities of accepting deposits.
          (2) An entity other than one referred to in (1)(a) or (b) may be the ParentG of an Authorised FirmG in CategoryG 1 or 5 where the ultimate, or any intermediate, ParentG is an entity of the type specified under 1(a) or (b).
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Restrictions on Category 3A, 3B, 3C and 4 Authorised Firms

        • PIB 8.5.2

          (1) An Authorised FirmG in CategoryG 3A, 3B, 3C or 4 must not, subject to (2), be a ParentG of an entity that:
          (a) is an Authorised FirmG in CategoryG 1 or 5 or an InsurerG ; or
          (b) carries on activities that would, if conducted in the DIFCG , constitute Accepting DepositsG , Managing a PSIAG which is a PSIAuG , or Effecting or Carrying out Contracts of InsuranceG .
          (2) An Authorised FirmG in CategoryG 3A, 3B, 3C or 4 may own or control an entity referred to in (1) where it is itself a SubsidiaryG of:
          (a) a Regulated Financial InstitutionG licensed to carry on any one or more of the activities specified in (1)(b); or
          (b) an Authorised FirmG in CategoryG 1 or 5 or an InsurerG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]