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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
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  • PIB 10 Supervisory Review and Evaluation Processes

    • Introduction

      • PIB 10 Guidance

        1. This chapter deals with the regulatory requirements arising out of the need for Authorised FirmsG to carry out a self-assessment of their risk which can be reviewed and assessed by the regulator. This chapter details the RulesG stipulating the need to complete internal risk assessments by Authorised FirmsG in defined frequencies and the DFSA'sG role in reviewing the results of such assessments. In the case of Authorised FirmsG facing financial risks, the requirements in this chapter mandate completion of an internal capital adequacy assessment process. The DFSAG will review the results of such internal risk assessments. This chapter also sets out how the DFSAG may impose an additional capital requirement on a firm-specific basis in addition to the minimum requirement specified in PIB chapter 3 of this module.
        2. PIB Appendix 10 provides detailed guidance on the various components of the supervisory review and evaluation process and explains the role of the different parties in completing the required processes.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 10.1 Application

      • PIB 10.1.1

        This chapter applies to an Authorised FirmG in CategoryG 1, 2, 3A, 3B, 3C or 5 as follows:

        (a) sections PIB 10.1, PIB 10.2, PIB 10.3 and PIB 10.5 apply only to an Authorised FirmG in CategoryG 1, 2, 3A, 3B, 3C or 5; and
        (b) sections PIB 10.4 and PIB 10.6 apply only to an Authorised FirmG in CategoryG 1, 2, 3A or 5.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.1.2

        Where an Authorised FirmG to which this chapter applies is part of a Financial GroupG , this chapter applies on a consolidated basis in relation to all the entities within the Financial GroupG .

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

      • PIB 10.1.3

        In implementing the requirements prescribed in this chapter, an Authorised FirmG must give due and appropriate regard to the provisions in PIB App10.

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

        • PIB 10.1.3 Guidance

          If an Authorised FirmG is part of a Financial GroupG which is already subject to requirements similar to those prescribed in this chapter, the DFSAG may consider a request for a waiver or modification in relation to the requirements of this chapter.

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

    • PIB 10.2 Overview

      • PIB 10.2 Guidance

        1. These RulesG are designed to implement key aspects of Pillar 2 of the revised framework of capital adequacy, commonly known as Basel III, published by the Basel Committee on BankingG Supervision.

        Internal Risk Assessment ProcessG (IRAPG )

        2. An Authorised FirmG in CategoryG 1, 2, 3A, 3B, 3C or 5 is required to carry out an IRAPG . An IRAPG is a comprehensive internal risk evaluation as detailed in PIB section 10.3. More detail on the establishment of an IRAPG and the manner of carrying out an IRAPG assessment is provided in PIB App10.

        Internal Capital Adequacy Assessment ProcessG (ICAAPG )

        3. An Authorised FirmG in CategoryG 1, 2, 3A or 5 is also required to carry out an ICAAPG as detailed in PIB section 10.4. This process enables such an Authorised FirmG to determine and maintain an adequate amount and quality of capital, relative to its risk profile. More detail on the establishment of an ICAAPG and the manner of carrying out an ICAAPG assessment is provided in PIB App10.

        Supervisory Review and Evaluation ProcessG (SREPG )

        4. The documented results of IRAPG and ICAAPG assessments are required to be submitted to the DFSAG . The DFSAG then applies a process known as the SREPG as detailed in PIB section 10.5. As part of the SREPG , the DFSAG will evaluate the quality, completeness and consistency of the IRAPG and, where applicable, the ICAAPG of the Authorised FirmG , to form a view on the overall risk profile of the firm and whether the capital held by the firm is sufficient to deal with the risks. More detail concerning the SREPG is provided in PIB App10.
        5. Following review of the IRAPG and ICAAPG of an Authorised FirmG , the DFSAG may engage in a dialogue with the firm to evaluate the assessment of risks and where relevant, additional capital which the DFSAG considers that the firm should hold resulting from the IRAPG , ICAAPG or SREPG .

        Individual Capital RequirementG (ICR)

        6. Upon completing the SREPG , the DFSAG may impose an Individual Capital RequirementG on an Authorised FirmG in CategoryG 1, 2, 3A or 5 as detailed in PIB section 10.6. The ICR may be imposed where the DFSAG concludes that the firm should hold more capital to provide for its overall risks.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 10.3 IRAP

      • PIB 10.3.1

        This section applies to an Authorised FirmG in CategoryG 1, 2, 3A, 3B, 3C or 5.

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

      • PIB 10.3.2

        (1) An Authorised FirmG must establish and maintain an IRAPG which details the processes and procedures by which the firm will identify, assess, aggregate and monitor the risks faced by it.
        (2) The firm must conduct the IRAPG assessment at least annually giving due regard to the GuidanceG in PIB section A10.1 of PIB App10.
        (3) The IRAPG assessment conducted by the firm pursuant to (2) must be approved by its Governing BodyG and then submitted to the DFSAG within four months from the end of the firm's financial year.
        (4) In addition to (2), the firm must conduct an IRAPG assessment:
        (a) whenever there is material change to the business, strategy, nature or scale of the activities of the firm which may have a significant impact on its risk profile or adequacy of its Capital ResourcesG or Adjusted Capital ResourcesG , as applicable; or
        (b) as and when required by the DFSAG .
        (5) An IRAPG assessment conducted by the firm pursuant to (4) must be approved by its Governing BodyG and then submitted to the DFSAG within two months, or such other period as may be specified by the DFSAG , from the date of such material change or requirement.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.3.3

        The results of an IRAPG assessment must be documented by the Authorised FirmG in writing and include details of:

        (a) the risks identified;
        (b) the firm's strategies and plans to deal with those risks;
        (c) the firm's assessment of the adequacy of its Capital RequirementG as calculated under PIBG to address all the risks identified by its IRAPG ;
        (d) the details of any stress testing and scenario analysis carried out and the resultant impact on the Capital RequirementG ; and
        (e) any other relevant information, giving due regard to the GuidanceG in PIB App10.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.3.4

        An Authorised FirmG must retain the records of an IRAPG assessment for at least six years.

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

    • PIB 10.4 ICAAP

      • PIB 10.4.1

        This section applies to an Authorised FirmG in CategoryG 1, 2, 3A or 5.

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

      • PIB 10.4.2

        (1) An Authorised FirmG must implement and maintain an ICAAPG which details the processes and procedures by which the firm will assess and maintain adequate Capital ResourcesG in relation to the risks faced by it.
        (2) The firm must conduct an ICAAPG assessment at least annually giving due regard to the GuidanceG in PIB section A10.2 of PIB App10.
        (3) The ICAAPG assessment conducted by the firm pursuant to (2) must be approved by its Governing BodyG and then submitted to the DFSAG within four months from the end of the firm's financial year.
        (4) In addition to (2), the firm must conduct an ICAAPG assessment:
        (a) whenever there is material change to the business, strategy, nature or scale of the activities of the firm which may have a significant impact on its risk profile or adequacy of its Capital ResourcesG or Adjusted Capital ResourcesG , as applicable; or
        (b) as and when required by the DFSAG .
        (5) The ICAAPG assessment conducted by the firm pursuant to (4) must be approved by its Governing BodyG and then submitted to the DFSAG within two months from the date of such material change or requirement.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.4.3

        An Authorised FirmG must ensure that an ICAAPG assessment is documented in writing and includes details of:

        (a) the calculations and models used in the determination of the level of Capital RequirementsG which it considers will be adequate to cover all the risks identified by its ICAAPG assessment;
        (b) the firm's strategies and plans to ensure availability of the level of capital determined by the ICAAPG ;
        (c) specifications of any models used in the ICAAPG , including the underlying assumptions, parameters, and results of back-testing; and
        (d) any other relevant information, giving due and appropriate regard to the GuidanceG in PIB App10.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.4.4

        An Authorised FirmG must retain the records of an ICAAPG assessment for at least six years.

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

    • PIB 10.5 SREP

      • PIB 10.5 Guidance

        1. The DFSAG may conduct a SREPG to review and evaluate the assessments carried out by an Authorised FirmG under its IRAPG (relevant to firms in CategoriesG 1, 2, 3A, 3B, 3C and 5) and ICAAPG (relevant to firms in CategoriesG 1, 2, 3A and 5). PIB Section A10.3 of PIB App10 contains guidance in relation to a SREPG .
        2. The DFSAG may engage with a firm in CategoriesG 1, 2, 3A and 5 in a dialogue where, following an SREPG , the DFSAG considers that it is or may be appropriate to impose an Individual Capital RequirementG on the firm.
        3. It is important that a firm cooperates in an open and co-operative manner with the DFSAG in the course of its conduct of the dialogue.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 10.6 Imposition of an Individual Capital Requirement

      • PIB 10.6.1

        (1) This section applies to an Authorised FirmG in CategoryG 1, 2, 3A or 5.
        (2) The DFSAG may, subject to (3) and (4), at any time by written notice to an Authorised FirmG :
        (a) impose an Individual Capital RequirementG ; or
        (b) vary or withdraw an Individual Capital RequirementG .
        (3) The DFSAG may act under (2) on its own initiative where the DFSAG forms the view that the firm's Capital RequirementG is insufficient to address adequately all its risks.
        (4) The DFSAG will, in addition to prescribing an Individual Capital RequirementG , also specify in the notice the types and amounts of Capital ResourcesG required to meet the Individual Capital RequirementG .
        (5) The procedures in Schedule 3 to the Regulatory Law apply to a decision of the DFSAG under (2) made after a LicenceG has been granted.
        (6) If the DFSAG decides to exercise its power under (2) after a LicenceG has been granted, the Authorised FirmG may refer the matter to the FMTG for review.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM135/2014 (Made 21st August 2014). [VER22/06-14]

      • PIB 10.6.2

        An Authorised FirmG must have and maintain, at all times, Capital ResourcesG of the types and amounts specified in the notice issued to it under PIB Rule 10.6.1 to meet its Individual Capital RequirementG .

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