GEN 11.8 GEN 11.8 Changes relating to controlDerived from Notice of Amendments to Legislation April 2011 [VER27/02-11]
GEN 11.8.1 GEN 11.8.1(1) This section applies, subject to (2) and (3), to:(a) an
Authorised Firm; or(b) a Personwho is, or is proposing to become, a Controllerspecified in GEN Rule 11.8.3.(2) This chapter does not apply to a Representative Officeor a Personwho is a Controllerof such a firm.(3) A Credit Rating Agencymust comply with the requirements in this section as if it were a non-DIFC established company.
GEN 11.8.1 Guidance
The requirements in respect of notification of changes relating to control of
Branches(i.e. Non-DIFC established companies) are set out in GEN Rule 11.8.10. Although some Credit Rating Agenciesmay be companies established in the DIFC, such companies will only be subject to the notification requirements relating to their Controllers. Accordingly, regardless of whether a Credit Rating Agencyis a company established in the DIFC or a Branchoperation, it is subject to the notification requirements only and not to the requirement for prior approval by the DFSA of changes relating to its Controllers.[Added] DFSA RM96/2012 (Made 24th July 2012) [VER30/07-12]
Definition of a Controller
GEN 11.8.2 GEN 11.8.2(1) A
Controlleris a Personwho, either alone or with any Associate:(a) holds 10% or more of the shares in either the Authorised Firmor a Holding Companyof that firm;(b) is entitled to exercise, or controls the exercise of, 10% or more of the voting rights in either the Authorised Firmor a Holding Companyof that firm; or(c) is able to exercise significant influence over the management of the Authorised Firm as a result of holding shares or being able to exercise voting rights in the Authorised Firmor a Holding Companyof that firm or having a current exercisable right to acquire such shares or voting rights.(2) A reference in this chapter to the term:(a) "share" means:(i) in the case of an Authorised Firm, or a Holding Companyof an Authorised Firm, which has a share capital, its allotted shares;(ii) in the case of an Authorised Firm, or a Holding Companyof an Authorised Firm, with capital but no share capital, rights to a share in its capital; and(iii) in the case of an Authorised Firm, or a Holding Companyof an Authorised Firm, without capital, any interest conferring a right to share in its profits or losses or any obligation to contribute to a share of its debt or expenses in the event of its winding up; and(b) "a holding" means, in respect of a Person, shares, voting rights or a right to acquire shares or voting rights in an Authorised Firmor a Holding Companyof that firm held by that Person either alone or with any Associate.
GEN 11.8.2 Guidance1. For the purposes of these Rules, the relevant definition of a
Holding Companyis found in the DIFC Companies Law. That definition describes when one body corporate is considered to be a holding company or a subsidiary of another body corporate and extends that concept to the ultimate holding company of the body corporate.2. Pursuant to Rule 11.8.2(1)(c), a Personbecomes a Controllerif that Person can exert significant management influence over an Authorised Firm. The ability to exert significant management influence can arise even where a Person, alone or with his Associates, controls less than 10% of the shares or voting rights of the Authorised Firmor a Holding Companyof that firm. Similarly, a Personmay be able to exert significant management influence where such Persondoes not hold shares or voting rights but has current exercisable rights to acquire shares or voting rights, such as under Options.
For the purposes of determining whether a
Personis a Controller, any shares, voting rights or rights to acquire shares or voting rights that a Person holds, either alone or with any Associate, in an Authorised Firmor a Holding Companyof that firm are disregarded if:(a) they are shares held for the sole purpose of clearing and settling within a short settlement cycle;(b) they are shares held in a custodial or nominee capacity and the voting rights attached to the shares are exercised only in accordance with written instructions given to that Person by another Person; or(c) the Personis an Authorised Firmor a Regulated Financial Institutionand it:(i) acquires the shares as a result of an underwriting of a share issue or a placement of shares on a firm commitment basis;(ii) does not exercise the voting rights attaching to the shares or otherwise intervene in the management of the issuer; and(iii) retains the shares for a period less than one year.
Requirement for prior approval of Controllers of Domestic Firms
GEN 11.8.4 GEN 11.8.4(1) In the case of an
Authorised Firmwhich is a Domestic Firm, a Personmust not:(a) become a Controller; or(b) increase the level of control which that Personhas in the firm beyond a threshold specified in (2),unless that Personhas obtained the prior written approval of the DFSA to do so.(2) For the purposes of (1)(b), the thresholds at which the prior written approval of the DFSA is required are when the relevant holding is increased:(a) from below 30% to 30% or more; or(b) from below 50% to 50% or more.
GEN 11.8.5 GEN 11.8.5(1) A
Personwho is required to obtain the prior written approval of the DFSA pursuant to Rule 11.8.4(1) must make an application to the DFSA using the appropriate form in AFN.(2) Where the DFSA receives an application under (1), it may:(a) approve the proposed acquisition or increase in the level of control;(b) approve the proposed acquisition or increase in the level of control subject to such conditions as it considers appropriate; or(c) object to the proposed acquisition or increase in the level of control.
GEN 11.8.5 Guidance1. A
Personintending to acquire or increase control in an Authorised Firmshould submit an application for approval in the appropriate form in AFN sufficiently in advance of the proposed acquisition to be able to obtain the DFSA approval in time for the proposed acquisition. Sections 3-2-34 – 3-2-37 of the RPP Sourcebook set out the matters which the DFSA will take into consideration when exercising its powers under Rule 11.8.5 to approve, object to or impose conditions of approval relating to a proposed Controlleror a proposed increase in the level of control of an existing Controller.2. The DFSA will exercise its powers relating to Controllers in a manner proportionate to the nature, scale and complexity of an Authorised Firm's business, and the impact a proposed change in control would have on that firm and its Clients. For example, the DFSA would generally be less likely to impose conditions requiring a proposed acquirer of control of an Authorised Firm whose financial failure would have a limited systemic impact or impact on its Clientsto provide prudential support to the firm by contributing more capital. Most advisory and arranging firms will fall into this class.
GEN 11.8.6 GEN 11.8.6(1) Where the DFSA proposes to approve a proposed acquisition or an increase in the level of control in an
Authorised Firmpursuant to Rule 11.8.5(2)(a), it must:(a) do so as soon as practicable and in any event within 90 days of the receipt of a duly completed application, unless a different period is considered appropriate by the DFSA and notified to the applicant in writing; and(b) issue to the applicant, and where appropriate to the Authorised Firm, an approval notice as soon as practicable after making that decision.(2) An approval, including a conditional approval granted by the DFSA pursuant to Rule 11.8.5(2)(a) or (b), is valid for a period of one year from the date of the approval, unless an extension is granted by the DFSA in writing.
GEN 11.8.6 Guidance1. If the application for approval lodged with the DFSA does not contain all the required information, then the 90 day period runs from the date on which all the relevant information has been provided to the DFSA.2. If a
Personwho has obtained the prior DFSA approval for an acquisition or an increase in the control of an Authorised Firmis unable to effect the acquisition before the end of the period referred to in Rule 11.8.6(2), it will need to obtain fresh approval from the DFSA.
Objection or conditional approval process
GEN 11.8.7 GEN 11.8.7(1) Where the
DFSAproposes to exercise its objection or conditional approval power pursuant to Rule 11.8.5(2)(b) or (c) in respect of a proposed acquisition of, or an increase in the level of control in, an Authorised Firm, it must, as soon as practicable and in any event within 90 days of the receipt of the duly completed application form, provide to the applicant:(a) a written notice stating:(i) the DFSA'sreasons for objecting to that Personas a Controlleror to the Person'sproposed increase in control; and(ii) any proposed conditions subject to which that Personmay be approved by the DFSA; and(b) an opportunity to make representations within 14 days of the receipt of such notice or such other longer period as agreed to by the DFSA.(2) The DFSAmust, as soon as practicable after receiving representations or, if no representations are received, after the expiry of the period for making representations referred to in (1)(b), issue a final notice stating that:(a) the proposed objections and any conditions are withdrawn and the Personis an approved Controller;(b) the Personis approved as a Controllersubject to conditions specified in the notice; or(c) the Personis not approved and therefore is an unacceptable Controllerwith respect to that Personbecoming a Controllerof, or increasing the level of control in, the Authorised Firm.(3) If the DFSAdecides to exercise its power under this Rule not to approve a Personas a Controlleror to impose conditions on an approval, the Personmay refer the matter to the FMTfor review.
GEN 11.8.7 Guidance [Deleted][Deleted] DFSA RM131/2014 (Made 21st August 2014). [VER34/06-14]
GEN 11.8.8 GEN 11.8.8(1) A
Personwho has been approved by the DFSA as a Controllerof an Authorised Firmsubject to any conditions must comply with the relevant conditions of approval.(2) A Personwho has been notified by the DFSA pursuant to Rule 11.8.7(2)(c) as an unacceptable Controllermust not proceed with the proposed acquisition of control of the Authorised Firm.[Amended] DFSA RM105/2012 (Made 23rd December 2012). [VER32/12-12]
GEN 11.8.8 Guidance
Personwho acquires control of or increases the level of control in an Authorised Firmwithout the prior DFSA approval or breaches a condition of approval is in breach of the Rules. See Rule 11.8.13 for the actions that the DFSA may take in such circumstances.
Notification for decrease in the level of control of Domestic Firms
Controllerof an Authorised Firmwhich is a Domestic Firmmust submit, using the appropriate form in AFN, a written notification to the DFSA where that Person:(a) proposes to cease being a Controller; or(b) proposes to decrease that Person's holding from more than 50% to 50% or less.
Requirement for notification of changes relating to control of Branches
GEN 11.8.10 GEN 11.8.10(1) In the case of an
Authorised Firmwhich is a Branch, a written notification to the DFSA must be submitted by a Controlleror a Personproposing to become a Controllerof that Authorised Firmin accordance with (3) in respect of any one of the events specified in (2).(2) For the purposes of (1), a notification to the DFSA is required when:(a) a Personbecomes a Controller;(b) an existing Controllerproposes to cease being a Controller; or(c) an existing Controller's holding is:(i) increased from below 30% to 30% or more;(ii) increased from below 50% to 50% or more; or(iii) decreased from more than 50% to 50% or less.(3) The notification required under (1) must be made by a Controlleror Personproposing to become a Controllerof a Branch using the appropriate form in AFN as soon as possible, and in any event, before making the relevant acquisition or disposal.
[Deleted][Deleted] DFSA RM105/2012 (Made 23rd December 2012). [VER32/12-12]
Obligations of Authorised Firms relating to its Controllers
GEN 11.8.11 GEN 11.8.11(1) An
Authorised Firmmust have adequate systems and controls to monitor:(a) any change or proposed change of its Controllers; and(b) any significant changes in the conduct or circumstances of existing Controllers which might reasonably be considered to impact on the fitness and propriety of the Authorised Firmor its ability to conduct business soundly and prudently.(2) An Authorised Firmmust, subject to (3), notify the DFSA in writing of any event specified in (1) as soon as possible after becoming aware of that event.(3) An Authorised Firmneed not comply with the requirement in (2) if it is satisfied on reasonable grounds that a proposed or existing Controllerhas either al obtained the prior approval of the DFSA or notified the event to the DFSA as applicable.
GEN 11.8.11 Guidance
Steps which an
Authorised Firmmay take in order to monitor changes relating to Controllers include the monitoring of any relevant regulatory disclosures, press reports, public announcements, share registers and entitlements to vote, or the control of voting rights, at general meetings.
GEN 11.8.12 GEN 11.8.12(1) An
Authorised Firmmust submit to the DFSA an annual report on its Controllers within four months of its financial year end.(2) The Authorised Firm's annual report on its Controllers must include:(a) the name of each Controller; and(b) the current holding of each Controller, expressed as a percentage.
GEN 11.8.12 Guidance1. An
Authorised Firmmay satisfy the requirements of Rule 11.8.12 by submitting a corporate structure diagram containing the relevant information.2. An Authorised Firmmust take account of the holdings which the Controller, either alone or with any Associate, has in the Authorised Firmor any Holding Companyof the firm (see the definition of a Controllerin Rule 11.8.2).
Other Powers relating to Controllers
GEN 11.8.13 GEN 11.8.13(1) Without limiting the generality of its other powers, the
DFSAmay, subject only to (2), object to a Personas a Controllerof an Authorised Firmwhere such a Person:(a) has acquired or increased the level of control that Personhas in an Authorised Firmwithout the prior written approval of the DFSAas required under Rule 11.8.4;(b) has breached the requirement in Rule 11.8.8 to comply with the conditions of approval applicable to that Person; or(c) is no longer acceptable to the DFSAas a Controller.(2) Where the DFSAproposes to object to a Personas a Controllerof an Authorised Firmunder (1), the DFSAmust provide such a Personwith:(a) a written notice stating:(i) the DFSA'sreasons for objecting to that Personas a Controller; and(ii) any proposed conditions subject to which that Personmay be approved by the DFSA; and(b) an opportunity to make representations within 14 days of the receipt of such objections notice or such other longer period as agreed to by the DFSA.(3) The DFSAmust, as soon as practicable after receiving representations, or if no representations are made, after the expiry of the period for making representations referred to in (2)(b), issue a final notice stating that:(a) the proposed objections and any conditions are withdrawn and the Personis an approved Controller;(b) the Personis approved as a Controllersubject to conditions specified in the notice; or(c) the Person is an unacceptable Controllerand accordingly, must dispose of that Person's holdings.(4) Where the DFSAhas issued a final notice imposing any conditions subject to which a Personis approved as a Controller, that Person must comply with those conditions.(5) Where the DFSAhas issued a final notice declaring a Personto be an unacceptable Controller, that Personmust dispose of the relevant holdings within such period as specified in the final notice.(6) The DFSAmust also notify the Authorised Firmof any decision it has made pursuant to (3).(7) If the DFSAdecides to exercise its power under this Rule to object to a Personas a Controller, to impose conditions on an approval or to require a Personto dispose of their holdings, the Personmay refer the matter to the FMTfor review.