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  • Part 5 Part 5 Rules Specific to Different Types of Domestic Funds

    • Guidance

      Article 13 of the Law defines Funds as either Domestic Funds or Foreign Funds. Article 15 of the Law further defines Domestic Funds as falling into three categories, i.e. Public Funds, Exempt Funds and Qualified Investor Funds. While the core requirements in CIR Part 4 of this module are of common application to most types of Domestic Funds, the requirements in this Part apply only to certain types of Domestic Funds, depending on whether they are Public Funds, Exempt Funds or Qualified Investor Funds. Where a certain type of Fund is also a specialist class of Funds, 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 CIR 10 Requirements Specific to Public Funds

      • CIR 10.1 CIR 10.1 Application

        • CIR 10.1.1 CIR 10.1.1

          (1) This chapter applies to a Fund Manager and Trustee of a Domestic Fund which is a Public Fund, and also to Persons providing the oversight function for such a Fund.
          (2) A Fund Manager and Trustee of a Public Fund are not subject to the oversight requirement in (1) if the Fund's investments are limited to those that require passive management and the Fund's 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

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

      • CIR 10.2 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 Fund must be made to the DFSA by the Body Corporate which is to be the Fund Manager of a Domestic Fund. If the Fund is an Investment Trust, then the Trustee and Fund Manager must jointly apply.
            (2) The Fund Manager and, if applicable, the Trustee 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's legal advisers to the effect that:
            (a) the Constitution of the Fund complies with the requirements prescribed under the Law and under these Rules;
            (b) the Prospectus complies with the requirements prescribed under the Law and under these Rules; and
            (c) if the Fund is managed by an External Fund Manager, 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 DFSA may:

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

        • Requirements for Registration

          • CIR 10.2.3 CIR 10.2.3

            Subject to the provisions of these Rules, a Fund will only be registered by the DFSA 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 Fund as referred to in (a) are completed;
            (c) the Fund has appointed to it a Fund Manager which is:
            (i) authorised by the DFSA under its Licence to carry on the Financial Service of Managing a Collective Investment Fund; or
            (ii) an External Fund Manager as defined in Article 20(5) of the Law;
            (d) the Fund, if it is an Investment Trust, has a Trustee which meets the requirements in the Investment Trust Law 2006;
            (e) the Fund Manager has made satisfactory arrangements in relation to the oversight function of the Fund and the delegation of the activity of Providing Custody as required under the Law and this module;
            (f) the Fund Manager has appointed an Auditor of the Fund who complies with the requirements in CIR section 9.3; and
            (g) the name of the Fund 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 Fund to have the form of an Investment Company, Investment Partnership or Investment Trust. An Investment Company can also take the form of a Protected Cell Company (PCC).
              2. In the case of an Investment Company (including a PCC) or Investment Partnership, the legal formalities relating to formation of the Fund involves registration by the Company Registrar of the Investment Company or Investment Partnership which is to be the Fund vehicle. In the case of an Investment Trust, the legal formalities relating to the formation of the trust involve the execution by the Fund Manager and the Trustee 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 Manager of an Investment Company or Investment Partnership must delegate the function of holding safe custody of Fund Property (i.e. the Financial Service of Providing Custody in relation to Fund Property) to an Eligible Custodian. In the case of an Investment Trust, the Trustee of the Fund provides the safe custody function relating to Fund Property. However, this obligation does not apply in the case of certain types of specialist Funds where alternative safe custody arrangements are permitted (see the custody requirements for Private Equity Funds and certain types of Property Funds 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 DFSA may refuse to grant an application for the registration of a Fund 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 DFSA grants registration to a Fund, 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 DFSA maintains a list of Public Funds which have been registered on its Public Register.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Withdrawal of Registration

          • Guidance

            Under Article 32 of the Law, the DFSA may withdraw the registration of a Fund in specified circumstances.

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

        • Reinstatement

          • Guidance

            The DFSA may reinstate the registration of a Fund pursuant to Article 33 of the Law if it is satisfied that the Fund 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 CIR 10.3 Oversight Arrangements for Public Funds

        • CIR 10.3 Guidance

          Chapter 2 of the Law (see Articles 39–42) sets out the general requirements relating to the oversight arrangements which a Public Fund must have, including the powers and duties of the Persons appointed to a Public Fund to provide the oversight function. The Rules 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 CIR 10.3.1

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

            (a) an Oversight Committee comprising at least three individuals each of whom meets the suitability criteria prescribed in CIR Rule 10.3.2; or
            (b) the Eligible Custodian or Trustee of the Fund, 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 Manager of a Domestic Fund which is a Public Fund to establish and maintain one of the permitted oversight arrangements prescribed by the DFSA. Accordingly, such a Fund Manager must appoint one of the oversight arrangements specified in CIR Rule 10.3.1 to every Public Fund which it manages.
              2. The membership of the Oversight Committee may comprise individuals including but not limited to members of the board of directors of the Fund Manager or that of the Fund, or the individual directors of the Corporate Director, or the members of the General Partner of an Investment Partnership, 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 Manager 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's 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 Manager 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 CIR 10.3.2

            (1) For the purposes of CIR Rule 10.3.1, a Person undertaking the oversight function meets the relevant criteria if that Person:
            (a) is suitably qualified;
            (b) is fit and proper; and
            (c) meets the independence criteria in Article 42 of the Law.
            (2) A Fund Manager must, in the case of each individual to be appointed as a member of an Oversight Committee 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 Manager must, where an Eligible Custodian or Trustee is to be appointed as the oversight provider of the Fund, 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 Custodian or Trustee who will be undertaking the primary responsibility for performing the oversight function for the Fund.
            (4) A Fund Manager must ensure that there is a written agreement:
            (a) by which an individual is appointed to an Oversight Committee or the Trustee or Eligible Custodian is appointed to the oversight function of the Fund, 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 DFSA, a Fund Manager must provide to the DFSA any information relating to the appointment or intended appointment of a Person to provide the oversight function for the Fund.
            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 Manager should take into account when assessing the fitness and propriety of an individual who is to be appointed to carry out the Fund's oversight function.
              2. In the case of a Trustee or Eligible Custodian appointed to provide the oversight function, a Fund Manager 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. Trustees are required to be independent of the Fund Manager (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 Trustee rests on individuals other than its board members, the Fund Manager should assess whether such individuals possess the required degree of independence from the Fund Manager in assessing their fitness and propriety to carry out the oversight function effectively. A Fund Manager should, when making that assessment, focus particularly on whether the Persons providing the oversight function have access to sufficient resources to perform their duties objectively and independently of the Fund Manager.
              4. In assessing the competence of a prospective appointee, a Fund Manager 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 Manager is required to have in place must include adequate measures to monitor whether the Persons appointed to provide the oversight function for the Fund meet the suitability criteria specified in CIR Rule 10.3.2(1) on a continuing basis.
            (2) If a Person appointed to provide the oversight function for the Fund is either unable to fulfil his duties or no longer meets the suitability criteria in CIR Rule 10.3.2(1), the Fund Manager must, within 21 days of the event causing such inability, dismiss and replace that Person, subject to the requirement in (4).
            (3) If a Person appointed to provide the oversight function for the Fund resigns from or otherwise vacates that position, the Fund Manager 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 Fund as specified in CIR Rule 10.3.1 as is relevant to that particular Fund.
            (5) The Fund Manager must notify the DFSA and, in the case of an Investment Trust where the Trustee is not the appointed oversight provider for the Fund, the Trustee, of the matters referred to in this Rule, 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 CIR 10.3.4

            The Persons providing the oversight function must:

            (a) monitor whether the Fund Manager:
            (i) is managing the Fund in accordance with the Constitution and the most recent Prospectus of the Fund, including in particular, any investment and borrowing limitations, requirements relating to the valuation of Fund Property and any other requirements or restrictions imposed on the Fund under the Law or any Rules in this module;
            (ii) is complying with any terms and conditions on the Fund Manager's Licence, particularly with respect to the management of the Fund; and
            (iii) if it is an External Fund Manager, is complying with the specific requirements that apply to such a Person by virtue of being an External Fund Manager;
            (b) assess whether the Fund Manager's systems and controls, particularly those relating to risk management and compliance, operate as intended and remain adequate;
            (c) report to the Fund Manager 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 DFSA if:
            (i) the Fund Manager 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 Person believes on reasonable grounds that the matter has had, or is likely to have, a materially adverse impact on the interests of the Unitholders of the Fund.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 10.3.4 Guidance

              External Fund Managers 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 CIR 10.3.5

            The Persons providing the oversight function for a Fund 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 Trustee, 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 Persons providing the oversight function should hold in the DIFC such number of meetings during every annual accounting period as are considered appropriate for the nature and scale of the activities of the Fund.
              2. The Persons 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 CIR 10.3.6

            Each individual appointed to carry out the oversight function for a Fund, 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 Committee referred to in CIR Rule 10.3.1(a), to each member of that Committee; and
            (b) where a Trustee or Eligible Custodian is appointed for providing the oversight function for a Fund, to each individual responsible for carrying out the oversight function for the Fund. .
            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 DFSA may consider exercising its power under Article 39(2) of the Law to object to the appointment and require the Fund Manager to appoint a replacement.
              3. The onus will be on the DFSA 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 DFSA 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 Committee or the senior persons responsible within the Trustee or Eligible Custodian 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 DFSA in an open and co-operative manner and must disclose appropriately any information of which the DFSA 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 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 Rules, the systems and controls established and maintained by the Fund Manager must be adequate to ensure that the Persons providing the oversight function:
            (a) have adequate resources and access to accurate, timely and comprehensive information relating to the management of the Fund 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 Persons to the Fund Manager as required under CIR Rule 10.3.4(c) and, for this purpose, have recourse to the Fund Manager's Governing Body or any other relevant committee established by that Governing Body where relevant.
            (2) The Fund Manager must also ensure that its systems and controls make provision to enable:
            (a) the Compliance Officer to have unrestricted access to the Persons providing the oversight function and, to their reports and recommendations;
            (b) the Fund Manager to promptly act upon and remedy, to the satisfaction of the Persons providing the oversight function, any matter identified and reported to it by such Persons; and
            (c) the Persons providing the oversight function to report to the DFSA of any compliance breaches or inadequacies that are reported to the Fund Manager 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 Persons 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's operations. While all Fund Managers and appointees, irrespective of size, legal structure or organisation need to comply with this section, the DFSA will take into account these factors and the differences that exist between Funds when assessing the adequacy of a Fund Manager's systems and controls. Nevertheless, neither these factors nor the differences relieve a Fund Manager 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 Persons appointed to perform the oversight function must report to the Fund Manager as to whether the Fund Manager's 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 Manager.
            (2) Where an Eligible Custodian or Trustee has been appointed as the Person providing the oversight function, the Fund Manager must provide to that Person, and to the Fund's Governing Body, a copy of the Fund's most recent internal audit report and any compliance report as soon as such report is available to the Fund Manager.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Oversight Report

          • CIR 10.3.13

            (1) The Person providing the oversight function of a Public Fund must make a report to Unitholders of the Fund which must be included in the Fund's 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 Person carrying out the oversight functions and in respect of the safekeeping of the Fund Property; and
            (b) a statement whether, in any material respect:
            (i) the issue, sale, redemption and cancellation, and calculation of the price of the Units and the application of the Fund's income, have not been carried out in accordance with the Rules and, the Constitution; and
            (ii) the investment and borrowing powers and restrictions applicable to the Fund 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 Manager must take reasonable steps to ensure that it and its Employees and those of the Fund:

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

        • Record Keeping

          • CIR 10.3.15

            (1) A Fund Manager must keep records of:
            (a) the due diligence process it has undertaken to assess whether the Persons 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 Persons 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 CIR 10.4 Prospectus Requirement for Public Funds

        • CIR 10.4 Guidance

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

          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 CIR 10.5 Investment and Borrowing Requirements for Public Funds

        • Application

          • CIR 10.5.1

            This section applies to the Fund Manager of a Domestic Fund which is a Public Fund, an Eligible Custodian and, where appropriate, a Trustee, and, to Persons appointed to perform the oversight function for such a Fund, 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 CIR 10.5.2

            A Fund Manager must take reasonable steps to ensure that the Fund Property of a Public Fund provides a spread of risk that is consistent with the investment objectives and policy of the Fund as stated in its most recently published Prospectus, and in particular, any investment objectives as regards return to the Unitholders 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 Fund can provide a wide or restrictive spread of risk, provided it is consistent with the investment objectives and policy of the Fund as stated in the most recently published Fund Prospectus of that Fund. For example, if a Fund's investment objectives and policy are to invest in a single asset (a single property Fund), 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 Prospectus, 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 Prospectus of a Public Fund that is a Property Fund.

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

          • CIR 10.5.3

            (1) A Fund Manager must avoid the Fund Property being used or invested contrary to any provision in this section.
            (2) On becoming aware of any breach of a Rule in this section, a Fund Manager must take action, at its own expense, to rectify that breach.
            (3) A Fund Manager must take the action in (2) immediately, except in circumstances where it decides doing so would not be in the best interests of Unitholders, in which case the action must be taken as soon as such circumstances cease to apply.
            (4) A Fund Manager must not postpone taking action in accordance with (2) unless the Persons 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 Fund may invest in Units of another Fund, except where otherwise provided in the Rules in this module, only where the Fund Manager has taken reasonable care to determine, before investing in that other Fund, 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 Unitholders to redeem their Units within a reasonable time if it is an Open-ended Fund;
            (c) is prohibited from having more than 20% of its value in the Units of other Funds; and
            (d) has a proper and disclosed basis for asset valuation and the pricing of Units in that Fund.
            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 CIR 10.5.5

            (1) The total exposure of a Public Fund to Derivatives may not exceed the net asset value of the Fund Property.
            (2) The Fund Manager's 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's Derivative positions and their contribution to the overall risk profile of the Fund.
            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 Derivatives) giving rise to credit or counterparty exposure in Open-ended Domestic Funds (see CIR Rule 8.6A.1(2)).
              2. An Exchange Traded Fund (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 Derivatives, such as a total return swap, to replicate the performance of the specified index or other benchmark it tracks. The Prospectus 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 Derivatives (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's Constitution and its most recent Prospectus, the Fund Manager, or the Eligible Custodian or Trustee at the request of the Fund Manager, may enter into:
            (a) stock lending arrangements in respect of any Securities forming the Fund Property; and
            (b) stock borrowing arrangements.
            (2) The Fund Manager 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 Securities transferred.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Borrowing

          • CIR 10.5.7

            (1) Subject to the Fund's Constitution and its most recent Prospectus, the Fund Manager, or the Eligible Custodian or Trustee on the instructions of the Fund Manager, may borrow money for the use of the Fund on terms that the borrowing is to be repayable out of the Fund Property.
            (2) The Fund Manager must ensure, except in the case of a Property Fund, that the Fund's borrowing does not on any day exceed 20% of the net asset value of the Fund Property 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 Manager must take immediate action to deal with that breach.
            (4) In this Rule, "borrowing" also includes any arrangement including a combination of Derivatives to achieve a temporary injection of money into the Fund Property 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 Manager of a Fund other than a Property Fund must before investing in Real Property, appoint, with the approval of the Person providing the oversight function for the Fund, a Valuer 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 Property is expertly valued.

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

          • CIR 10.5.9 CIR 10.5.9

            (1) The Fund Manager must ensure that the Valuer appointed under CIR Rule 10.5.8 procures the proper valuation of all the property held within the Fund Property, 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 Manager must, subject to (4), ensure that the Valuer values the property, on the basis of a review of the last full valuation, at least every 12 months.
            (4) If any event occurs which may on reasonable grounds have a material effect on the valuation of the relevant property the Fund Manager must consult with the Valuer with a view to arranging a fresh valuation before any Units in the Fund are issued or redeemed after the date of the event.
            (5) The Fund Manager must require that any valuation by the Independent Valuer is on the basis of an 'open market value' as defined in the Constitution and Prospectus.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RMI275/2020 (Made 26th February 2020). [VER/28/04-20]

            • CIR 10.5.9 Guidance

              The DFSA would expect the Fund Manager 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 CIR 11 [Deleted]

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

      • CIR 11.1 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 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 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 CIR 11.3 [Deleted]

        • CIR 11.3 Guidance [Deleted]

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

    • CIR 12 CIR 12 Requirements Specific to Exempt Funds

      • CIR 12.1 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 Fund may be constituted as an Exempt Fund only if it satisfies all of the conditions in Article 16(4). Article 16(4) provides that an Exempt Fund must:
          a. have its Units offered to persons only by way of a Private Placement;
          b. have only Unitholders each of whom meets the criteria to be classified as a Professional Client; and
          c. have a minimum subscription of at least US$50,000 for a person to become a Unitholder in the Fund,
          and not satisfy the conditions in Article 16(5) to be a Qualified Investor Fund.
          2. Under Article 26(1) of the Law, an Exempt Fund is required to have one of the permitted forms, i.e. an Investment Company, Investment Partnership or an Investment Trust. However, certain types of Exempt Funds which belong to a specialist class of Funds may be permitted to use only some and not all the permitted forms. See CIR Part 6 for those variations.
          3. If an Exempt Fund can no longer meet the relevant conditions to be classified as an Exempt Fund, the Fund Manager of that Fund is required, under Article 34(3), to apply for the winding up of that Fund. Alternatively, the Fund Manager may have that Fund moved to the classification of a Public Fund, which requires the satisfaction of the requirements and formalities specific to that type of Fund. An Exempt Fund may also, if it wishes to, convert to a Qualified Investor Fund provided it meets the conditions applicable to a Qualified Investor Fund in Article 16(5) of the Law.
          4. In addition to the requirements specific to Exempt Funds, such a Fund must also meet, except where otherwise provided, the other requirements that are common to all Domestic Funds, which are set out in CIR Part 4 of this module.
          5. Units of Exempt Funds can only be Offered by way of Private Placement and to Professional Clients, but must meet the additional criterion of a minimum subscription test of US$50,000. The definition of Professional Client is set out in Rule 1.3.1.
          6. Generally a firm will not be able to undertake mass marketing activities relating to Units of Exempt Funds because such marketing would not meet the Private Placement requirement, and would be likely to amount to a public offer, which can only be made in respect of a Unit of a Public Fund.
          7. A Fund Manager of an Exempt Fund, 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 CIR 12.1.1

          (1) A Fund may be classified as an Exempt Fund only if it fulfils the criteria in Article 16(4) of the Law at the inception of the Fund and on an on-going basis.
          (2) A Fund Manager must ensure that a Fund which is or is intended to be established and operated as an Exempt Fund meets the criteria in Article 16(4) both at the inception of the Fund and on an on-going basis.
          (3) For the purposes of (2), where a Fund Manager makes arrangements with other Authorised Firms or Persons in other jurisdictions to Offer to issue or sell the Units of an Exempt Fund, then it must take reasonable steps to ensure that those Authorised Firms or other Persons do not Offer to issue or sell the Units in a manner that would result in a breach of the criteria in Article 16(4).
          (4) As soon as a Fund Manager becomes aware that an Exempt Fund 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 Fund, or alternatively, take necessary steps to have the Fund registered as a Public Fund; and
          (b) notify the DFSA of that fact and the measures it has taken and proposes to take under (a).
          (5) A Fund Manager of an Exempt Fund which is subject to the valuation requirement in CIR Rule 8.4.1(1) must appoint a Fund Administrator or a Person regulated by a Financial Services Regulator as the Person undertaking the valuation of that Fund.
          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 Manager of an Exempt Fund, when notifying the DFSA pursuant to Article 34 of the Law, must also include:

            (a) a general description of the Fund including the nature of its investments and the intended size of the Fund in monetary terms;
            (b) if it is a Hedge Fund 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 Regulator; 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 Manager;
            (c) if it is an External Fund, the name of the jurisdiction in which the Fund is established or domiciled; and
            (d) if it is an External Fund Manager, the name of the jurisdiction in which that Fund Manager is domiciled, and the details of the Appointed Fund Administrator or Trustee to that Fund for the purposes of CIR Rule 6.1.3.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 12.2 CIR 12.2 Exempt Fund Prospectus

        • CIR 12.2 Guidance

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

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

    • CIR 12A CIR 12A Requirements Specific to Qualified Investor Funds

      • CIR 12A.1 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 Fund may be constituted as a Qualified Investor Fund only if it satisfies all of the conditions in Article 16(5). Article 16(5) provides that a Qualified Investor Fund must:
          a. have its Units offered to persons only by way of Private Placement;
          b. have only Unitholders each of whom meets the criteria to be classified as a Professional Client; and
          c. have an initial subscription to be paid by a person to become a Unitholder in the Fund 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 Units of Qualified Investor Funds because such marketing would not meet the Private Placement requirement, and would be likely to amount to a public offer, which can only be made in respect of a Unit of a Public Fund.
          [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 Fund may be classified as a Qualified Investor Fund only if it fulfils the conditions in Article 16(5) of the Law at the inception of the Fund and on an on-going basis.
          (2) A Fund Manager must ensure that a Fund which is or is intended to be established and operated as a Qualified Investor Fund meets the conditions in Article 16(5) of the Law both at the inception of the Fund and on an on-going basis.
          (3) For the purposes of (2), where a Fund Manager makes arrangements with other Authorised Firms or Persons in other jurisdictions to Offer to issue or sell the Units of a Qualified Investor Fund, then it must take reasonable steps to ensure that those Authorised Firms or other Persons do not Offer to issue or sell the Units 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 Manager becomes aware that a Qualified Investor Fund 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 Fund, or alternatively, take necessary steps to have the Fund reconstituted as an Exempt Fund or registered as a Public Fund; and
          (b) notify the DFSA 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 CIR 12A.2 Responsibilities of a Fund Manager of a Qualified Investor Fund

        • CIR 12A.2 Guidance

          1. While a Fund Manager of a Qualified Investor Fund is exempt from many of the detailed requirements applicable to Public Funds and Exempt Funds, it will continue to be subject to most of the main obligations of Fund Managers. Therefore, such a Fund Manager should be mindful that when managing a Qualified Investor Fund, it is subject to some of the overarching obligations applicable to Fund Managers, 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 Manager of a Qualified Investor Fund needs to observe high standards of integrity and fair dealing, and apply due skill, care and diligence, in managing the Fund. Similarly, it must have adequate systems and controls to ensure that the affairs of the Fund are effectively managed, taking into account the nature, scale and complexity of the Fund's operations and the investment objectives and needs of its investors.
          3. A Fund Manager of a Qualified Investor Fund, 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 CIR 12A.3 Custody of Fund Property

        • CIR 12A.3.1 CIR 12A.3.1

          (1) For the purposes of Article 27(1)(e) of the Law, the Fund Manager of a Qualified Investor Fund that is not an Investment Trust must ensure that the legal title to Fund Property is registered with an Eligible Custodian.
          (2) The requirement in Article 27(1)(e) of the Law does not apply to the Fund Manager of a Qualified Investor Fund if it is:
          (a) a Property Fund;
          (b) a Private Equity Fund;
          (c) a Venture Capital Fund; or
          (d) a Fund in so far as it is investing in an interest in the operation of a Real Property asset (such as investment in an infrastructure project).
          (3) If the Fund Manager of a Qualified Investor Fund referred to in (2) itself holds Fund Property of any kind or if it uses a Fund Platform and the Incorporated Cell Company holds Fund Property of any kind, it must have in place effective arrangements which ensure that the Fund Property is not available to creditors in the event of the insolvency of the Fund Manager or the Incorporated Cell Company (as the case may be).
          [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
          [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]
          [Amended] DFSA RMI248/2019 (Made 18th December 2019) [VER26/12-19].
          [Amended] DFSA RMI279/2020 (Made 28th October 2020). [VER29/11-20]

          • CIR 12A.3.1 Guidance

            1. Article 27(1)(e) of the Law requires a Domestic Fund that is not an Investment Trust to have legal title to the Fund Property registered with an eligible person (unless the Rules provide otherwise). CIR Rule 12A.3.1(1) specifies that the person must be an Eligible Custodian. CIR Rule 12A.3.1(2) disapplies the requirement in relation to Fund Property of certain kinds of Qualified Investor Funds. Regardless of who holds title to Fund Property, the Fund Manager must always ensure that, in accordance with Article 22(2)(f) of the Law, Fund Property is clearly identified as such and held separately from property of the Fund Manager and any other Funds. Where Fund Property consists of cash or liquid assets, the assets must also be held under arrangements that clearly identify them as belonging to the Fund, and must be properly segregated from similar assets belonging to the Fund Manager and any other Funds.
            2. Where a Fund invests in infrastructure projects (for example, the development of public facilities such as roads, railways or bridges), the Fund Manager may hold self-custody of the Fund Property which consists of the interest in the infrastructure project. However, where it does so, the Fund Manager is not exempt from the overarching obligation under CIR 8.2.2(1) to Unitholders of the QIF to ensure safe custody of the Fund Property. This envisages proper identification and segregation of the interest in the infrastructure project as Fund Property of the QIF.
            [Added] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]
            [Amended] DFSA RMI279/2020 (Made 28th October 2020). [VER29/11-20]