Entire Section

  • GEN 2.9 GEN 2.9 Arranging deals in investments

    • GEN 2.9.1 GEN 2.9.1

      (1) In GEN Rule 2.2.2, Arranging Deals in Investments means making arrangements with a view to another Person buying, selling, subscribing for or underwriting an Investment (whether that other Person is acting as principal or agent).
      (2) The arrangements in (1) include:
      (a) arrangements which do not bring about the transaction; and
      (b) arrangements comprising or involving the receipt and transmission of Client orders in relation to Investments.
      (3) The arrangements in (1) do not include arrangements which amount to Operating an Alternative Trading System.
      (4) In this Rule and in Rules 2.9.2 to 2.9.7, an "Investment" includes rights under a contract of Long-Term Insurance, that is not a contract of reinsurance.
      Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
      [Amended] [VER4/08-05]
      [Amended] [VER10/06-06]
      [Amended] DFSA RM49/2007 (Made 1st October 2007). [VER16/10-07]
      [Amended] DFSA RM68/2009 (Made 3rd January 2010). [VER24/01-10]
      Amended in accordance with Notice of Amendments to Legislation April 2011 [VER27/02-11]
      [Amended] DFSA RM176/2016 (Made 19th June 2016) [VER37/08-16]
      [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.1 Guidance

        What constitutes 'Arranging deals in Investments'?

        1. The activities which constitute making arrangements with a view to another Person buying, selling, underwriting or subscribing for an Investment (whether that other Person is acting as principal or agent) generally involve the following elements:
        a. the purpose of such an arrangement is to 'facilitate' or 'bring about' transactions between other parties such as:
        i. buyers and sellers of Investments;
        ii. issuers of and subscribers for Securities (note — subscription is generally an activity associated with an initial offer of Securities);
        iii. issuers and underwriters of securities (note — underwriting here is an activity associated with an initial offer of Securities, as opposed to underwriting of risks, which is an activity of an insurer); and
        iv. insurers writing Long-Term Insurance and policyholders who wish to obtain such insurance.
        b. such arrangements can be either of an on-going nature, for example, an arrangement which is available to potential buyers or sellers of Investments, or an arrangement which is bespoke (i.e. available on a one-off basis for a particular client, such as an underwriter of Securities).
        2. The activities referred to in Guidance item 1 can include one or more of the following:
        a. the introduction of:
        i. potential buyers of Investments to issuers or sellers of Investments, or vice versa;
        ii. potential subscribers for Securities to issuers;
        iii. potential underwriters to issuers of Securities, or vice–versa;
        iv. potential parties to a derivatives transaction; and
        v. policyholders or cedants to insurers or reinsurers underwriting Long-Term Insurance;
        b. assisting any of the parties referred to in a. through activities, such as, completing the applications or other processes relevant to the transaction;
        c. negotiating and settling terms of the contracts between the parties referred to in a.;
        d. collecting and processing fees, commissions or other payments (such as premiums in the case of Long-Term Insurance); and
        e. transmitting instructions or confirmations relating to transactions.

        Do arrangements which form part of another facility constitute arranging?

        3. An arrangement which is part of a wider arrangement for the purpose of bringing about transactions in Investments still falls within the scope of the Financial Service of arranging. For example, an arranger may arrange (i.e. allow access) for potential investors to access a facility set up by an offeror of Securities. The arrangement to allow access constitutes arranging, although, for a transaction to be concluded, the investor will also need to use the offeror's facility.

        How does 'arranging deals' differ from 'dealing as agent'?

        4. 'Arranging Deals in Investments' differs from the Financial Service of 'Dealing in Investments as Agent' in GEN Rule 2.8.1 because:
        a. a Person 'arranging deals' (i.e. the 'arranger') does not have the authority to bind the parties to an Investment transaction resulting from its 'arranging' activities; and
        b. a Person 'dealing as agent' acts as the agent of a party to the Investment transaction and has the authority to bind its principal.
        5. For example, a Person acting as an agent either:
        a. executes the transaction for its principal (the Client); or
        b. if using another broker to execute the client order, commits the Client to the transaction by giving a binding order to the broker.
        6. In contrast, a Person acting as an arranger may, for example, receive and transmit client orders to a broker, but does not have the power to execute or enter into the transaction for the client, or commit the client to a transaction. See the exclusion in GEN Rule 2.8.3 from 'Dealing in Investments as Agent', and GEN Rule 2.9.1(2)(b), both of which reflect the above position.

        Do arrangements that do not bring about transactions constitute arranging?

        7. An activity falls within the scope of the Financial Service of 'arranging' even if it does not necessarily lead to a completed transaction. For example, a prospective buyer or seller of Securities may change his mind and not sign a contract for the sale or purchase of Securities. Similarly, a potential buyer of Long-Term Insurance, after having completed an application form for Long-Term Insurance with the assistance of an arranger, may not go ahead with the purchase of the policy. In both examples, just because the transaction has not been concluded, the arranger's activities do not cease to be 'arranging' under GEN Rule 2.9.1.

        Which activities do not constitute 'arranging'?

        8. A Person who performs for a financial service provider (in or outside the DIFC) delegated or outsourced functions, such as back office administration services, does not carry on 'arranging' activities under GEN Rule 2.9.1. For example, a Person undertaking administrative tasks (such as processing applications, transmitting orders, or issuing confirmations of transactions for a brokerage firm or an insurer) is not arranging transactions.
        9. A passive display of literature which advertises Investments does not amount to arranging, unless something more is done to help potential investors or policyholders to buy such Investments or policies. For example, a passive display of leaflets advertising Investments in property funds at the reception of an office, such as an accountant's office, or a display of leaflets advertising permanent health policies of an Long-Term Insurance insurer at a doctor's or dentist's waiting rooms, would not constitute arranging, provided the relevant service providers or employees in their offices do not assist or facilitate transactions by potential investors/policyholders.

        Arranging Long-Term Insurance

        10. An 'Investment' is defined in Rule 2.9.1(4) to include rights under a contract of Long-Term Insurance (other than a contract of reinsurance). As a result, arranging activities relating to contracts of Long-Term Insurance fall within Arranging Deals in Investments. 'Long-Term Insurance' is defined in GLO, in summary, as a contract of the type described in GEN Rule A4.1.2 (certain types of life insurance) that is expressed to be in force for more than one year and meets specified conditions.
        [Added] [VER10/06-06]
        [Amended] DFSA RM68/2009 (Made 3rd January 2010). [VER24/01-10]
        Amended in accordance with Notice of Amendments to Legislation April 2011 [VER27/02-11]
        [Amended] DFSA RM176/2016 (Made 19th June 2016) [VER37/08-16]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

    • Exclusions

      • GEN 2.9.2

        A Person does not carry on the activity of Arranging Deals in Investments under GEN Rule 2.9.1(1) in relation to a transaction if the Person becomes, or proposes to become, a party to the transaction (regardless of whether the transaction is effected). This exclusion does not apply in the case of a branch which makes arrangements for its head office, or any other branch of the same legal entity as itself, to enter into a transaction as provided under GEN Rule 2.9.1(1).

        Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.3

        A Person does not Arrange Deals in Investments merely by providing means by which one party to a transaction is able to communicate with other such parties.


        Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.4

        A Person does not Arrange Deals in Investments by making arrangements under which another Person accepts or is to accept an instrument creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation which he or his principal has made or provided.


        Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.5

        A Person does not Arrange Deals in Investments merely by making arrangements having as their sole purpose the provision of finance to enable a Person to buy, sell, subscribe for or underwrite Investments.


        Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.6

        A Person does not Arrange Deals in Investments by making arrangements for the issue or redemption of Securities issued by it.

        Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.7

        A Person does not Arrange Deals in Investments if the activity:

        (a) is carried on in the course of providing legal or accountancy services, which do not otherwise consist of the carrying on of Financial Services;
        (b) may reasonably be regarded as a necessary part of any other services provided in the course of providing legal or accountancy services;
        (c) is not remunerated separately from the other services; and
        (d) in the case of a contract of Long-Term Insurance, does not assist in the conclusion or performance of the contract.
        Derived from DFSA RM01/2004 (Made 16th September 2004). [VER1/09-04]
        [Amended] DFSA RM166/2016 (Made 10th February 2016). [VER36/04-16]
        [Amended] DFSA RM176/2016 (Made 19th June 2016) [VER37/08-16]
        [Amended] DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.8 GEN 2.9.8

        An Exchange does not make arrangements referred to in GEN Rule 2.9.1(a), merely by making arrangements for, or taking steps that facilitate, another Person to act as Central Counterparty to transactions entered into on a facility operated by the Exchange.

        Derived from DFSA RM166/2016 (Made 10th February 2016). [VER36/04-16]

        • GEN 2.9.8 Guidance

          1. GEN Rule 2.9.2 excludes the activities of a party to a transaction from being 'arranging'. This is because a person cannot be both a party to a transaction, and its arranger.

          2. Where a Person (an arranger) makes arrangements in the DIFC for another Person to obtain dealing services (e.g. broking services) from its head office, the arranger is not regarded as 'Dealing in Investments as Agent' in the DIFC merely because it is the same legal entity as its head office. However, to be able to do so without breaching the Financial Services Prohibition, the arranger would need to have an Authorisation for 'Arranging Deals in Investments'. It would also need to take care not to conduct activities that go beyond 'arranging' (see Guidance under GEN Rule 2.9.1 for activities which constitute arranging).

          3. GEN Rule 2.9.3 excludes providers of means by which one party to a transaction (or potential transaction) communicates with the other contracting parties, from being arrangers. Communication channel providers, such as internet or telecommunication network providers, are excluded from being arrangers under this exclusion. However, if such a provider goes beyond being a 'mere' communication channel provider, for example, by adding value to the service provided to those communicating with each other, with a view to facilitating a contract being concluded, this exclusion will not apply to them.

          4. GEN Rule 2.9.4 excludes from being arranging the activity of making arrangements for a lender (such as a bank) to accept an instrument acknowledging debt by a person who has obtained credit, a loan, a guarantee or any other form of financial facility. This mirrors the similar carve-out from regulation available to banks and other lenders where they are not considered to be 'dealing as principal' in Investments merely because they accept instruments acknowledging debt from those obtaining credit, loans, guarantees or any other form of financial facility from them.

          5. GEN Rule 2.9.6 excludes issuers of Securities from being regarded as arrangers. For example, if an issuer of Securities sets up a website which enables prospective buyers of Securities to read the offer document and apply for the relevant Securities, the issuer is not required to have a Licence as an arranger due to this exclusion (but may have to comply with the disclosure requirements in MKT relating to the offer).

          6. GEN Rule 2.9.7 excludes from being 'arrangers' lawyers and accountants, who, in the course of conducting their legal and accounting business, arrange for their clients to buy or sell Securities. To have the benefit of this exclusion, certain conditions have to be met (such as the activity being reasonably regarded as a necessary part of services provided by legal and accounting practitioners and not being separately remunerated). For example, if a lawyer arranges as part of estate planning services for a portfolio of investments to be sold by a brokerage firm, this exclusion can be applied, provided the lawyer's fees do not include a separate charge for arranging the liquidation of the portfolio, and the lawyer does not assist or participate in the conclusion of the contracts.

          Derived from DFSA RM184/2016 (Made 7th December 2016). [VER38/02-17]

      • GEN 2.9.9

        A Crowdfunding Operator does not Arrange Deals in Investments to the extent that it Operates an Investment Crowdfunding Platform.

        [Added] DFSA RMI201/2017 (Made 14th June 2017). [VER40/08-17]