REP 1 REP 1 Application
REP 1.1 REP 1.1 Application
REP 1.1.1 REP 1.1.1(1) This module (REP) applies to every
Personwho carries on, or intends to carry on, the Financial Serviceof Operating a Representative Officein or from the DIFC.(2) Unless otherwise stated, the Rulesapply to a Representative Officeonly with respect to activities carried on from an establishment maintained by it in the DIFC.
REP 1.1.1 Guidance1. Because of the limited nature of the
Financial Serviceof Operating a Representative Officemuch of the DFSA Rulebookhas been disapplied for Representative Offices. While most of the key provisions applying to a Representative Officeare contained in this module, a Representative Officeshould ensure that it complies with and has regard to other relevant provisions in other applicable DFSA RulebookModules including AML, GEN chapters 1 to 3, and 11 and sections 6.9 and 6.10, CIR chapter 2 and sections CIR 3.5 to CIR 3.7 and FER. The application section of each Rulebookmodule sets out which chapters, if any, apply to a Representative Office.2. A Representative Officeshould also ensure that it complies with and has regard to relevant provisions of the Regulatory Law and Markets Law. The Regulatory Law gives the DFSAa number of important powers in relation to Authorised Firmsincluding powers of supervision and enforcement.3. GEN Rule 2.26.1 defines the Financial Serviceof Operating a Representative Officeand prescribes the activities which a Representative Officeis permitted to carry on. By virtue of GEN 2.2.9 and GEN 2.26.2, the Financial Service of Operating a Representative Office is a stand alone financial service activity.4. Whilst much Representative Office activity will not involve a continuing relationship with the Personsto whom marketing is directed, where such a relationship is necessary, the Representative Officewill need to be careful to ensure that it does not carry on any activities other than those prescribed under GEN Rule 184.108.40.206. A Representative Officewhich undertakes a Financial Servicewhich is outside the scope of its Licencewill be in breach of Article 42(4) of the Regulatory Law. If the DFSAbelieves that a Representative Officeis in breach of Article 42(4), it may take steps which may include withdrawal of authorisation and formal enforcement action under the Regulatory Law.6. See also Guidance under section 1.3 for further clarification on the activities that a Representative Officeis permitted to undertake.Derived from DFSA RM68/2009 (Made January 3rd 2010). [VER1/01-10]
Amended in accordance with Notice of Amendments to Legislation April 2011 [VER3/02-11]
[Amended] DFSA RM88/2012 (Made 14th June 2012). [VER4/06-12]
[Amended] DFSA RM121/2013 (Made 14th July 2013). [VER5/07-13]
[Amended] DFSA RM174/2016 (Made 10th February 2016). [VER7/04-16]
[Amended] DFSA RM179/2016 (Made 19 June 2016). [VER8/08-16]
[Amended] DFSA RM186/2016 (Made 7th December 2016). [VER9/02-17]
REP 1.2 REP 1.2 Interpretation
REP 1.2 Guidance1. Every provision of REP and any other module of the
Rulebookshould be interpreted in the light of its purpose. The purpose of any provision is to be gathered first and foremost from the text of the provision in question and its context among other relevant provisions.2. Where this section refers to a provision, this means every type of provision, including Rulesand Guidance.3. Where reference is made in REP to another provision of the Rulebook or to another provision of DIFClegislation, it is a reference to that provision as amended from time to time.4. Unless the contrary intention appears:a. words in the Rulebookimporting the masculine gender include the feminine gender and words importing the feminine gender include the masculine; andb. words in the Rulebookin the singular include the plural and words in the plural include the singular.5. If a provision in the Rulebookrefers to a communication, notice, agreement, or other documents 'in writing' then, unless the contrary intention appears, it means in legible form and capable of being reproduced on paper, irrespective of the medium used. Expressions related to writing must be interpreted accordingly.6. Any reference to 'dollars' ('$') is a reference to United States Dollars unless the contrary intention appears.7. References to Articles made throughout the Rulebookare references to the Regulatory Law 2004 unless otherwise stated.8. Unless stated otherwise, a day means a calendar day. If an obligation falls on a calendar day which is either a Friday or Saturday or an official State holiday in the DIFC, the obligation must take place on the next calendar day which is a business day.
REP 1.2 Defined Terms9. Defined terms are identified throughout the
Rulebookby the capitalisation of the initial letter of a word or phrase and are defined in the Glossary (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, an expression has its natural meaning.
REP 1.3 REP 1.3 Scope of a Representative Office Licence
REP 1.3 Guidance
What is the scope of the activities of a Representative Office?1. A
Representative Office(Rep Office) is permitted to carry on a very narrow set of activities described as 'marketing' of financial services or financial products offered in a jurisdiction outside the DIFCby a 'related party' (i.e. its head office, another branch of the head office or a Groupmember).
'Marketing activities'2. The 'marketing' activities of a Rep Office can include one or more of the following:a. providing information about financial services or products offered by its head office or a Group member outside the
DIFC;b. engaging in Financial Promotions(such as holding events and seminars) relating to the financial products or financial services referred to above; andc. making introductions or referrals to its head office or a member of its Groupfor the financial services or financial products offered by them outside the DIFC.3. In addition to the above, a Rep Office may undertake certain additional activities which may not necessarily amount to 'marketing' of related party financial services and financial products. Examples are activities to increase the profile of its head office and be the point of contact and source of information about those parties. Similarly, a Rep Office may also report to the head office on matters such as business trends, business opportunities and developments in the DIFCmarkets.4. Whether a Rep Office is acting outside the scope of its Licenceis always a question of fact, which the DFSAwill determine in the overall context of the activities of the Rep Office. The DFSAwill take into account the indicators set out in the Guidance below when determining whether a Rep Office is acting within or outside the scope of its Licence. If a Rep Office undertakes activities which are considered outside the scope of its Licence, such activities would trigger appropriate regulatory action or could result in civil liability.
How do Rep Office activities differ from 'advising'?5. While a Rep Office can give general information to potential customers about financial services or financial products of its related parties, it is prohibited from advising, for example conducting the
Financial Serviceof ' Advising on Financial Products'. A firm licensed to give advice can give advice and distribute general information about financial products and financial services whether or not such services or products are of a related party of the firm or otherwise.6. A Rep Office must take particular care to ensure that it acts within the scope of its Licence, given the far narrower activities it can undertake by way of giving information about financial services and financial products, compared to a firm licensed to ' Advise on Financial Products', as highlighted below.7. The first difference is that the information which a Rep Office can give to a potential customer is limited to 'general information' about financial products or financial services. A firm ' Advising on Financial Products' can give advice to an investor or potential investor on the merits of that Person(either as principal or agent), buying, selling, holding, subscribing for or underwriting a particular financial product. This is advice, not just giving general information.8. Advice differs from general information because the latter does not contain any view, based on an assessment of the particular investor's needs and circumstances, of the merits of him buying, selling, subscribing for or underwriting a particular financial product. Instead, general information contains only factual information and promotional literature (such as product features and benefits) about the financial products.9. Generally, giving the following type of information constitutes providing general information that falls within the scope of a Rep Office Licence:a. the name and other details of the provider of the relevant financial product or financial service, and how that provider can be contacted;b. in the case of insurance, the type of risks which are covered or excluded under policies offered by the insurer;c. the types of benefits potentially available under Investments, and any risks associated with the relevant Investments;d. how fees, charges or premiums are calculated; ande. investment research or general market information.10. The second difference is, that unlike firms licensed to give advice on financial products offered by any third party, a Rep Office can only give general information about financial products or financial services offered by a related party.
How do Rep Office activities differ from 'arranging'?11. Many of the restrictions noted above apply in this context. A Rep Office can introduce or refer potential customers to a related party that provides financial products or financial services. In contrast, a firm licensed to conduct arranging activities i.e.
Arranging Deals in Investments, Arranging Creditand Advising on Credit, Arranging Custodyand Insurance Intermediation(referred to here as an 'arranging firm') can make such introductions or referrals to financial product or financial service providers, without such a provider having to be a related party of the arranging firm.12. Most importantly, while a Rep Office can introduce or refer potential customers to its related party financial product or financial service provider, it cannot undertake the extra activities which an arranging firm can undertake to facilitate a potential customer to obtain a financial product or financial service. Examples of activities which a Rep Office is not permitted to undertake, (but can be undertaken by an arranging firm), include:a. negotiating and settling the terms of the contract between the potential customer and the financial product or service provider;b. collecting and processing fees, commissions or other payments (such as premiums in the case of insurance);c. receiving and transmitting client orders or instructions;d. issuing confirmations relating to transactions;e. opening bank accounts for or on behalf of customers to facilitate transactions;f. receiving any fees or other financial benefits from the potential customer for its marketing or referral activities; andg. undertaking activities which can reasonably be regarded by potential customers as indicating (or implying) that they have a client relationship with the Rep Office. Examples of such activities include:i. having a nominated employee within the Rep Office as a key contact for a potential customer, being the point of contact for inquiries or complaints relating to the financial product or financial service offered by its related party;ii. having regular face-to-face meetings with the customers referred to its related parties to discuss those customers' needs and objectives, in circumstances that would lead the potential customer to believe that the Rep Office is providing the financial service or product; andiii. in the case of insurance, explaining to a potential policyholder its 'duty of disclosure' to the insurer.13. While the DFSAwould take into account the overall circumstances in determining whether a Rep Office had acted outside the scope of its Licence, generally a Rep Office will not be regarded as carrying on 'arranging activities' if it:a. distributes the type of general information referred to in Guidance item 9 above to potential customers;b. merely acts as a mail box for collecting and sending customer information (including KYC related information) provided by the potential customers to the financial product or financial service provider;c. sends account opening documents to potential customers (but does not assist in opening the account or open bank accounts in its name);d. hosts seminars and other marketing events, and regularly invites potential customers to such events;e. introduces a Grouprelationship manager at a seminar or other financial promotion hosted by the Rep Office to those attending the seminar; andf. receives commissions from the related parties for the referral of potential customers.
Third-party products distributed by a Rep Office's related parties14. A Rep Office is prohibited from marketing financial products offered by a third party unrelated to it, even if such a third party has an agreement with a related party of the Rep Office to distribute/market such products. For example, if a
Groupmember of the Rep Office is an arranger or a brokerage firm, the Rep Office cannot market any third party financial products which the related arranger or brokerage firm can distribute/market. This is because the financial product belongs to an unrelated third party, and the financial service itself of the related party, which the Rep Office can market, does not extend to the activities which the related party can carry out under its own authorisation/ Licence. The Rep Office can only make introductions or referrals to the arranging or brokerage firm which is related to it.
Related parties of a Rep Office located in the DIFC15. A Rep Office is also prohibited from marketing financial services or financial products offered by a related party if that party is in the
DIFC. For example, if a Rep Office has a Groupmember which is established in the DIFC, the Rep Office cannot undertake marketing activities relating to the financial products and financial services offered by that Groupmember.
What 'Financial Promotions' can a Rep Office undertake?16. A Rep Office can only undertake financial promotions relating to financial products or financial services offered by its related parties outside the
DIFC. A Rep Office is not permitted to undertake or approve ' Financial Promotions' relating to financial products or financial services offered by any unrelated party.
A Rep Office of a non-DIFC reinsurer17. The Guidance in items 18 to 20 focuses on clarifying issues that have arisen in reinsurance markets because the
DIFCis primarily a reinsurance market. However they generally apply in the direct insurance market as well.18. A Rep Office of a non- DIFCreinsurer will be able to provide to potential cedants information about the type of reinsurance contracts, including some general information about the standard terms, exclusions and premiums, offered by a related party reinsurer. It will also be able to refer reinsurers to its related parties where they are potential cedants. However, a Rep Office of a non- DIFCreinsurer cannot enter into any discussions about the terms of specific contracts of reinsurance, as such discussions would then become arranging or advising for the reasons discussed above.19. While a Rep Office will be able to refer a potential cedant to a related party non- DIFCreinsurer, it will not be able to place or assist in placing contracts of reinsurance with its related party reinsurers, as such activities amount to arranging. A Rep Office will need to upgrade to an Insurance Intermediation Licence if it wishes to:a. engage in detailed discussions relating to the terms of reinsurance contracts with DIFC reinsurers – which constitute 'arranging/advising';b. assist in placing of reinsurance business with its head office or a Group member – which constitutes 'arranging'; andc. act under a binding authority issued by its head office/Group member – which constitutes 'acting as agent'.
A Rep Office of a non-DIFC reinsurance broker20. A Rep Office of a non-
DIFCreinsurance broker will:a. be able to establish contact with DIFCreinsurers, but not maintain an on-going business relationship with them. For example, it cannot be the reference point for all complaints by reinsurers or cedants relating to contracts of reinsurance brokered by a related party;b. not be able to enter into discussions with DIFCreinsurers about the terms of specific reinsurance contracts that the reinsurer can enter into with prospective clients of a related party (i.e. potential cedants outside the DIFC) because such discussions:i. go beyond giving general information about the financial services offered by a related party (which is only a brokerage business). Discussions about the terms of specific contracts of insurance amount to arranging and probably advice (as a degree of tailoring to suit the particular cedant/reinsurer will be involved), and can only be undertaken by a licensed Insurance Intermediary in the DIFC, and not by a Rep Office of the non-DIFC reinsurance broker; andii. go beyond a referral of a reinsurer to a related party; andc. not be able to 'place' or 'assist' in the placing of reinsurance business with (as opposed to making referrals to) reinsurers in the DIFCthrough a related party that is offering reinsurance brokerage services to cedants, because such activities also go beyond either or both permitted activities of a Rep Office. For placing, or assisting in that process, the DIFCentity needs an Insurance Intermediation Licence, not a Rep Office Licence.Derived from DFSA RM186/2016 (Made 7th December 2016). [VER9/02-17]