Anti-money laundering and market abuse trends in the UK
The anti-money laundering (AML) and market abuse landscapes have continued to be turbulent over the last 18-24 months, and this trend is set to continue.
As the number of funds and fund managers licensed by the Dubai Financial Services Authority (DFSA) increases, the DFSA amends its Collective Investment Rules (CIR) to compete with other leading financial centers. The amendments come into effect on April 1, 2020.
The highlights are as follows.
To date, there has been some ambiguity as to the distinction between a Collective Investment Fund (Fund) (to which CIR applies) and a ‘commercial arrangement’ (which falls outside the ambit of CIR). The DFSA has sought to clarify this point by stating, broadly, that if the main purpose and effect of the arrangement is to carry on a commercial or other business unrelated to financial or investment activities, it will not constitute a Fund.
A Fund which takes the form of an investment company is only permitted to have a sole corporate director, and must include provisions in its Articles of Association which permit it to appoint that corporate director as its fund manager. If the investment company decides to be internally managed in this way, the fund manager must be licensed by the DFSA, and must not act as the fund manager of any other Fund, or manage the assets of another person. This latter restriction is likely to limit the attractiveness of using a fund manager as a corporate director.
A fund manager must take reasonable steps to establish and implement remuneration policies and practices which are: (a) consistent with the sound and effective risk management of the Fund it manages, and (b) do not, to the extent practicable, encourage risk-taking inconsistent with the investment objectives and risk profile of the relevant Fund.
The fund manager of an open-ended fund must ensure that the fund has sufficient liquidity to meet redemption requests. The new rules set out detailed minimum requirements in respect of the fund manager’s systems and controls for managing this risk.
The upper limit on the number of investors in both types of funds has been removed. The DFSA recognized that these limits were arbitrary, and that the minimum subscription levels and client classification restrictions achieve the protections the DFSA seeks.
The general rule is that a property fund (where the main purpose of the fund is to invest ‘real property’ (i.e. land and buildings)) must be closed-ended. The new rules allow Exempt Funds and QIFs to establish property funds using an open-ended legal structure.
The DFSA has introduced detailed rules defining what an “Exchange Traded Fund” is and the obligations on a fund manager of an Exchange Traded Fund.
Under the new rules an Exempt Fund or a QIF may also be constituted as a real estate investment fund (REIT) (property funds aimed at investments in income-generating real property and which distribute to investors at least 80 percent of its audited annual net income).
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On May 12, 2021, the Financial Reporting Council (FRC) published the results of research conducted by the FRC and the University of Portsmouth which assessed a sample of FTSE 350 companies to determine the extent to which they have applied requirements on directors’ remuneration set out in the UK Corporate Governance Code (2018 Code).
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