COB 12 COB 12 OPERATING OR ACTING AS THE ADMINISTRATOR OF AN EMPLOYEE MONEY PURCHASE SCHEME
COB 12.1 Application and Interpretation COB 12.1 Application and Interpretation
COB 12.1 Guidance
The terms “Member”, “Participating Employer” and “Scheme” are defined in GEN Rule 2.30.1 and the terms “DIFC Scheme” and “Non-DIFC Scheme” are defined in GLO.
The Rules in this chapter apply to an Authorised Firm when:(a) Operating an Employee Money Purchase Scheme; or(b) Acting as the Administrator of an Employee Money Purchase Scheme.
COB 12.1.1 Guidance1. The Rules in this Chapter apply to an Operator or Administrator of a Scheme regardless of whether the Scheme is established in the DIFC (a DIFC Scheme) or outside the DIFC (a Non-DIFC Scheme), unless otherwise provided. For example, the requirements in COB Rule 12.2.3 apply only in relation to a Non-DIFC Scheme.2. GEN Rule 2.2.10H prohibits an Authorised Firm from Operating or Acting as the Administrator of a Non-DIFC Scheme if the Scheme receives contributions from:a. a DIFC employer in respect of its employees under the Employment Law; orb. an employer in respect of its employees under another Dubai law.
In this Chapter:(a) “Administrator” means an Authorised Firm Acting as the Administrator of an Employee Money Purchase Scheme;(b) “Basic Wage” means an employee’s annual wage, excluding allowances and additional payments (such as bonuses);(c) “Beneficiary” means a Person nominated by a Member, or a Person legally entitled to a benefit if there is no valid nomination by a Member;(d) “Constitution”, in relation to an Employee Money Purchase Scheme, means:(i) if the Scheme uses a trust structure, the trust deed and trust rules of the trust;(ii) if the Scheme is a body corporate, the articles of association or other equivalent governing documents of the body corporate; or(iii) in any other case, the documents that set out the relevant terms of the scheme;(e) “Core Benefits” means the benefits required to be paid to an Employee Money Purchase Scheme by:(i) a DIFC employer in respect of its employees under the Employment Law; or(ii) an employer in respect of its employees under a Dubai law;(f) “Operator” means an Authorised Firm that is acting as the Operator of an Employee Money Purchase Scheme;(g) “Payment Schedule” has the meaning given in COB Rule 12.3.7; and(h) “Salary Sacrifice” means an amount that a Member has agreed in writing with the Member’s Participating Employer to have deducted from the Member’s Basic Wage; and(i) “Third Party Service Provider” means a Person to whom the Operator of a Scheme has delegated or outsourced an activity relating to the Scheme.
COB 12.2 General duties and functions COB 12.2 General duties and functions
General duties General duties
COB 12.2.1 COB 12.2.1
The Operator and Administrator of a Scheme must:(a) act in the best interests of the Members of the Scheme and, if there is a conflict between the interests of the Operator or Administrator of a Scheme and the interests of Members of the Scheme, give priority to the interests of Members;(b) not improperly make use of information acquired through being the Operator or Administrator of a Scheme to:(i) gain an advantage for itself or another Person; or(ii) cause detriment to Members of the Scheme;(c) ensure that its officers, employees and agents do not improperly make use of information acquired through being officers, employees or agents of the Operator or Administrator of a Scheme to:(i) gain an advantage for itself or another Person; or(ii) cause detriment to Members of the Scheme;(d) ensure that any Related Party Transaction is on terms at least as favourable to the Scheme as any comparable arrangement on normal commercial terms negotiated at arm’s length with an independent third party; and(e) report to the DFSA, any breach of legislation administered by the DFSA or other applicable laws that relates to the Scheme and has had, or is likely to have, a materially adverse effect on the interests of Members of the Scheme, as soon as practicable after it becomes aware of the breach.
COB 12.2.1 Guidance1. The general duties set out in COB Rule 12.2.1 that apply to an Operator and Administrator, are in addition to the Principles for Authorised Firms that also apply to all firms.Application of AML procedures2. An Administrator that performs AML functions on behalf of an Operator of a Scheme, is required to satisfy applicable AML requirements. The AML module provides flexibility to apply a risk-based approach, taking into account the nature of the product or service involved, and the customer relationship. For example, the Administrator:a. is required to undertake a risk-based assessment of every Participating Employer of the Scheme, and assign a risk rating proportionate to that employer (see AML Rule 6.1.1);b. may assign to Members of an Employee Money Purchase Scheme a low AML risk rating, taking into account the low AML risks associated with schemes or arrangements that provide employment benefits, such as pension, gratuity, retirement and superannuation schemes where:(i) the contributions are made by the Participating Employer in respect of each Member, and not by the Member;(ii) the employment benefits of the Member are not assignable to a third-party; and(iii) there are no other factors that suggest a higher risk of money laundering3. AML Rule 6.1.2 sets out factors that may indicate higher money laundering risks and AML Rule 6.1.3 sets out factors that may indicate lower money laundering risks.4. AML screening of a Member may be warranted before accepting voluntary contributions to a Scheme in certain circumstances, such as where the voluntary contributions:a. substantially exceed the amount of mandatory contributions for that Member; orb. are fully or freely withdrawable or assignable by the Member before the release of the mandatory contributions.
Approval of Scheme
An Operator of a Scheme must obtain the DFSA’s prior written approval for:(a) that Scheme before it operates the Scheme in or from the DIFC; and(b) any material change to the Scheme after it has been approved under (a).
Additional oversight functions
COB 12.2.2A COB 12.2.2A(1) This Rule applies to a DIFC Scheme that is exempted under the Employment Regulations from the requirement to have a Supervisory Body.(2) The Operator of a DIFC Scheme referred to in (1) must ensure that each employer making contributions to the Scheme:(a) carries out the oversight function for the Scheme that would, but for the exemption, be carried out by the Supervisory Body;(b) has sufficient information relating to the operation of the Scheme to be able to properly carry out the oversight function;(c) has the power under the Constitution of the Scheme, to appoint and remove the Operator of the Scheme, in accordance with the requirements under the Employment Law or any other applicable law; and(d) covenants, in the Constitution of the Scheme, to negotiate the fees and charges of the Operator and to assess the performance of the Operator, in the best interests of the Members of the Scheme.
COB 12.2.2A Guidance1. Under the Employment Law and the DFSA requirements, all Schemes established in the DIFC are required to be constituted as a trust.2. Under the Employment Regulations, a Qualifying Scheme must have a Supervisory Body, unless an exemption has been granted by the DIFCA Board. The DIFCA Board will grant an exemption from the requirement for a Supervisory Body, where the employer making contributions to the Scheme is able to demonstrate certain matters to the Board. COB Rule 12.2.2A(2) reflects the matters that the employer must be able to demonstrate. If an exemption is granted, the oversight function in respect of the Scheme may be carried out either by the employer itself or by a delegate acting on its behalf.
Additional requirements for a Non-DIFC Scheme
COB 12.2.3 COB 12.2.3
The Operator and Administrator of a Non-DIFC Scheme must:(a) in addition to complying with any applicable requirements of legislation in the DIFC, comply with the applicable requirements of legislation in the jurisdiction in which the Scheme is established; and(b) notify the DFSA, as soon as is practicable, of any event or matter that has, or could have, a material adverse impact on its ability to comply with the requirements referred to in (a).
COB 12.2.3 Guidance
An Operator or Administrator is prohibited under GEN Rule 2.2.10H from Operating or Acting as the Administrator of a Non-DIFC Scheme if that Scheme receives contributions required to be made by a DIFC employer under the Employment Law or contributions required to be made by any other employer under a Dubai law.
Constitution of the Scheme
An Operator of a Scheme must:(a) manage the Scheme and any property of the Scheme in accordance with the terms of the Constitution and any applicable laws;(b) perform the functions and duties conferred on it by the Constitution and applicable laws; and(c) ensure that the Administrator carries out the functions and duties in accordance with the Constitution and applicable laws.
An Operator of a Scheme must ensure that the Constitution of the Scheme:(a) does not contain any provision that is inconsistent with the requirements of legislation administered by the DFSA that apply to the Operator or Administrator of a Scheme or a Third Party Service Provider;(b) requires the property of the Scheme to be held irrevocably for the benefit of the Members of the Scheme;(c) does not permit the payment of benefits in circumstances contrary to any applicable legislation; and(d) provides for any amount due to a Member, which has not been paid by a Participating Employer, to be recoverable as a debt due to the Scheme.
Any provision in the Constitution of a Scheme is void to the extent that it is inconsistent with a requirement in these Rules.
Delegations and Outsourcing
COB 12.2.6 Guidance1. GEN Rules 5.3.21 and 5.3.22 provide overarching requirements that govern outsourcing of functions and activities by an Authorised Firm. The Rules in this section apply in addition to the requirements in GEN Rules where an Operator of a Scheme delegates or outsources functions and activities in relation to the Scheme.2. Under GEN Rule 5.3.21, if the Operator of a Scheme delegates any activities or outsources any functions to an Administrator of a Scheme or a Third Party Service Provider, it is not relieved of its regulatory obligations and remains responsible for its compliance with the legislation applicable in the DIFC.3. Where the Operator of a Scheme delegates any activities or outsources any functions to an Administrator of a Scheme, and there is a failure to comply with the regulatory obligations by that Administrator, while the Operator is liable for that non-compliance, the Administrator will still be liable for breach of its regulatory obligations to conduct its licensed activities properly.
An Operator of a Scheme must ensure that if it delegates or outsources an activity that is a financial service, the activity is carried on by a person who is either:(a) authorised by the DFSA to carry on that activity; or(b) regulated and supervised for that activity by a Financial Services Regulator.
COB 12.3 Key Information about the Scheme COB 12.3 Key Information about the Scheme
Information for prospective members
COB 12.3.1 COB 12.3.1
An Operator of a Scheme must ensure that before a person becomes a Member of the Scheme, that person is provided with the following information:(a) the name of the Scheme;(b) the name and address of the Operator and Administrator of the Scheme and how they can be contacted;(c) how the person can obtain up-to-date information about the Participating Employer’s contributions in respect of the Member;(d) a short description of:(i) the type of investment options offered on the Investment Platform;(ii) the investment objectives of each investment option, the strategy for achieving those objectives and any associated risks;(iii) how detailed information relating to each investment option can be obtained, and who is responsible for providing that information; and(iv) the comparative risk rating for each investment option, if available;(e) how and when a Member can switch their investments;(f) costs for which Members are responsible, with costs and charges associated with the administration of the Scheme, and the management fees and charges of the investment options offered on the Investment Platform, shown separately;(g) whether voluntary contributions can be:(i) made by a Member and, if so, how such contributions will be managed, including fees and charges; and(ii) withdrawn before the mandatory contributions, and if so, any limits on the frequency and amount of withdrawals that can be made, and the fees and charges associated with withdrawals;(h) the events upon which Member benefits are payable, and the method of calculating such benefits;(i) details relating to how Member inquiries and complaints will be handled and the contact details for inquiries and complaints; and(j) that the investment managers of the investment options offered on the Investment Platform are responsible for the information provided to Members relating to those investment options.
COB 12.3.1 Guidance1. An Operator in providing the information under COB Rule 12.3.1 must not offer investment selection assistance tools to Members, as such tools may be construed as Advising on Financial Products. However, if such a tool is offered by an investment manager of an investment option, the Operator may let Members know how the tool may be accessed and the investment manager responsible for the tool.2. A human resources department may provide information and conduct information sessions for Members and prospective Members about the Employee Money Purchase Scheme to which contributions will be made in respect of the Members. However, a human resource department should not give advice to Members on matters such as selecting investment options, or the merits of making voluntary contributions. Such advice should be given by a firm authorised to give advice on financial products.
Notification of any material change
An Operator of a Scheme must ensure that a person to whom information is provided under COB Rule 12.3.1 is notified promptly if there is any material change to information referred to in that Rule, whether the change occurs before or after the person becomes a Member of the Scheme.
Segregation of Scheme Property
An Operator of a Scheme must ensure that property of the Scheme is:
(a) held by an Eligible Custodian;
(b) clearly identified as the property of the Scheme; and
(b) held separately from the property of the Operator or Administrator of a Scheme or any Third Party Service Provider.
Valuation of Scheme Property
The Operator of a Scheme must ensure that:(a) the property of the Scheme is valued, at least annually, for the purposes of the annual report of the Scheme; and(b) a valuation of the property of the Scheme specific to each Member’s benefits is carried out for each valuation period set out in the Constitution of the Scheme, and the valuation is made available to the respective Member as soon as possible after the valuation.
Fees and charges
COB 12.3.5 COB 12.3.5The Operator of a Scheme must ensure that fees or charges payable by Members of the Scheme:(a) represent good value for the Members of the Scheme;(b) can be demonstrated by the Operator to be reasonable, taking into account the fees and charges of similar schemes in comparable jurisdictions;(c) do not exceed any ceiling specified in the Constitution or any applicable laws;(d) are expressly permitted under the terms of the Constitution or applicable laws or agreements;(e) are communicated clearly to the Members of the Scheme at the time of joining the scheme and in the event of any subsequent change; and(f) are not materially increased, unless the DFSA has given its prior written consent to such an increase.
COB 12.3.5 Guidance1. In considering if fees and charges represent good value for the Members of the Scheme, the Operator should take into account established principles, such as guidance issued by the UK Pension Regulator on what constitutes good value for members.2. In ensuring that the fees and charges of a Scheme are reasonable and represent value for money for Members, an Operator should take into account any reduction in costs that should be achievable due to economies of scale as assets under management increase, and due to efficiencies gained from market and technological advances.
COB 12.3.6 COB 12.3.6(1) A Participating Employer may make a payment to meet, in whole or in part, the administration costs of the Scheme.(2) Where a Participating Employermakes a payment under (1), the Operator must use that payment to defray the costs the administrative costs of the Scheme on Member contributions.
COB 12.3.6 Guidance
The payments referred to in COB Rule 12.3.6(1) are voluntary payments a Participating Employer may make, over and above Member contributions in respect of its Employees’ gratuity. If such payments are made, the Operator needs to ensure that they are used for defraying costs borne by Members, rather than treated as additional contributions available for investment.
COB 12.3.6A COB 12.3.6A
The Operator of a Scheme may accept a Member’s voluntary contributions to the Scheme, on the following conditions:(a) the voluntary contributions must be made by Salary Sacrifice by the Member and paid by the Member’s Participating Employer to the Scheme;(b) the voluntary contributions must be managed in the same manner as the mandatory contributions made in respect of that Member; and(c) if the voluntary contributions, or any part of them, are permitted to be withdrawn, the withdrawal must:(i) under the Constitution of the Scheme not be permitted to:(A) be made more than twice yearly; and(B) exceed, for any withdrawal, 30% of the amount that represents the Member’s voluntary contributions and earnings on those contributions, except on the grounds of extreme financial hardship as defined in the Constitution; and(ii) not adversely affect the rights and interests of:(A) the Member’s Core Benefits;(B) the Core Benefits of the other Members of the Scheme; or(C) the Scheme itself.
COB 12.3.6A Guidance1. An Operator may accept voluntary contributions under COB Rule 12.3.6A to a DIFC Scheme or Non-DIFC Scheme only if the Constitution of the Scheme permits it and, subject to the requirements applicable to voluntary contributions.2. A Member will only be able to make voluntary contributions as long as the contributions are made by the employer who is also making mandatory contributions. If the Member decides to retain the accrued benefit beyond the termination of employment with that employer, no further contributions to the Scheme can be made by the Member.3. The Authorised Firm is required to have adequate systems and controls in place to be able to clearly distinguish between mandatory contributions and voluntary contributions in respect of a Member, including the assets in which those contributions are invested.4. The defininition of extreme financial hardship in the Constitution of the Scheme (see COB Rule 12.3.6A(c)(i)) should be consistent with industry practice and may include, for example, circumstances such as the ill health of a Member or immediate family, death of a family member or other justifiable grounds.5. See Guidance items 2, 3 and 4 under COB Rule 12.2.1 relating to AML screening if a Member makes voluntary contributions.
COB 12.3.7The Operator of a Scheme must ensure that a Payment Schedule is prepared setting out in respect of each Participating Employer:(a) the rates, including the due dates, of all contributions payable to the Scheme by the Participating Employer;(b) each Member’s name, address and nominated Beneficiary; and(c) the amounts likely to be payable by each Member by way of fees or charges for the relevant year.
COB 12.3.8(1) The Operator of a Scheme must ensure that the Administrator notifies a Member of the Scheme in respect of whom a payment is due:(a) if payment under the Payment Schedule is not paid on the due date; and(b) if the amount is not recovered, of the consequences of the nonpayment to the Member.(2) The Administrator of the Scheme must notify the Operator:(a) if any payment under the Payment Schedule is not paid on the due date; and(b) if the amount is not recovered, of the consequences of the nonpayment for the Members of the Scheme.
COB 12.3.9(1) The Operator of a Scheme must:(a) establish a range of investment options offered on the Investment Platform, which are suitable for the investment objectives and risk profile of the different classes of Members of the Scheme;(b) ensure that the investment options include investments that are suitable for Members who are:(i) highly risk averse, and therefore, for whom capital preservation is paramount; or(ii) seeking Shari’a compliant options;(c) take appropriate action to remove any investment option that is found to not be meeting the applicable criteria; and(d) implement adequate measures to protect the interests of Members when an investment option is to be removed from the Investment Platform.(2) The Operator of a Scheme must consult with a Professional Adviser before carrying out its functions under (1).(3) Where the Operator of a Scheme does not act on a recommendation provided by the Professional Adviser, the Operator must do so on reasonable grounds which are clearly documented.(4) The Professional Adviser referred to in (2) must be a person who:(a) is either:(i) authorised under its Licence for Advising on Financial Products; or(ii) regulated and supervised for that activity by a Financial Services Regulator;(b) has appropriate skills and expertise relating to the type of investment options that are to be offered on the Investment Platform; and(c) is independent of the Operator and Administrator of the Scheme.
The Operator of a Scheme must:(a) enter into an agreement with each person who is responsible for an investment option (investment manager) to be offered on the Investment Platform, that sets out:(i) the criteria to be met by the investment manager;(ii) a requirement for the investment manager to ensure that its fees and charges are reasonable, taking into account the fees and charges of similar investments;(iii) the obligation of the investment manager to provide information relating to the investment options which Members are to use when making their investment options;(iv) the circumstances in which an investment option is to be removed from the Investment Platform and the procedures that apply to the removal; and(v) the measures to protect the interests of Members on the removal of an investment option from the Investment Platform;(b) make available to Members and prospective members of the Scheme, information relating to each investment option offered on the Investment Platform; and(c) provide Members with a facility to switch, free of charge at specified intervals, between investment options offered on the Investment Platform.
Register of Members
COB 12.3.11The Operator of the Scheme must ensure that the Administrator:(a) maintains a register of the Members of the Scheme and the Participating Employer in respect of each Member;(b) keeps the register at the principal place of business of the Administrator in the DIFC;(c) includes in the register the name of each Member and the date on which contributions commenced in respect of the Member; and(d) permits a Member and Participating Employer to access the relevant part of the register that contains information relevant to the Member or the Participating Employer during normal working hours and free of charge.
COB 12.3.12 COB 12.3.12
The Operator of a Scheme must ensure that the Administrator has in place adequate arrangements to deal efficiently and effectively with enquiries from Members and Participating Employers.
COB 12.4 Financial Statements, Reports and Audit Requirements COB 12.4 Financial Statements, Reports and Audit Requirements
COB 12.4.1The Operator of a Scheme must ensure that:(a) financial statements relating to the Scheme are prepared in respect of each financial year of the Scheme; and(b) the financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) or any other standard approved by the DFSA.
Annual and half year Reports
COB 12.4.2The Operator of a Scheme must:(a) prepare a financial report relating to the Scheme in respect of each(i) financial year of the Scheme; and(ii) half year of the Scheme;(b) prepare and maintain all financial statements in accordance with IFRS or any other reporting standard approved by the DFSA;(c) keep accounting records in sufficient detail to enable the financial statements of the Scheme to be prepared for the relevant financial year and half year that shows the financial position of the Scheme, including:(i) records of contributions received in respect of Members of the Scheme;(ii) investment earnings of the underlying investment options in which Member contributions are invested;(iii) fees and charges of the Scheme, and any other outgoings, showing separately:(A) the Operator’s overall fees and charges, with a breakdown of the amounts paid to the Administrator, Eligible Custodian and other Third Party Service Providers and, the fees and charges of the Professional Adviser; and(B) the fees and charges of the investment managers whose products are offered on the Investment Platform;(iv) an annual illustration of the overall impact of fees and charges of the Scheme on Member contributions;(v) transactions in respect of Scheme property; and(vi) any other matters as specified by the DFSA;(d) retain the accounting records for at least six years from the date to which the record relates; and(e) have the accounting records open for inspection by the Registered Auditor of the Scheme and the DFSA.
Annual Statements and Exit Statements
COB 12.4.3The Operator of a Scheme must ensure that the Administrator prepares and provides to each Member an annual statement for each financial year, in respect of the Member’s account, setting out:(a) the mandatory contributions received for or on behalf of the Member;(b) the voluntary contributions, if any, received from the Member;(c) the value of the investments attributed to the Member’s account, whether chosen by the Member or applying by default;(d) the earnings attributed to the Member’s account in respect of the investments referred to in (c);(e) the fees and charges deducted from the Member’s account; and(f) any other information required by the DFSA.
The Operator of the Scheme must ensure that the Administrator prepares and provides upon the exit of a Member an exit statement setting out the full details of the benefit payment, including any permitted deductions made from the benefit payment.
COB 12.4.5The Operator of a Scheme must ensure that:(a) an Auditor is appointed for the Scheme;(b) the Auditor conducts an audit of the financial statements of the Scheme in accordance with the requirements of the relevant standards published by the IAASB; and(c) the Auditor produces an Auditor’s Report on the audited financial statements of the Scheme.
COB 12.5 Management of financial resources COB 12.5 Management of financial resources
COB 12.5.1An Operator of a Scheme must ensure:(a) that the financial resources of the Scheme are managed soundly and prudently; and(b) that there are sufficient liquid assets in the Scheme to meet:(i) the payment of Member benefits; and(ii) expenses and other charges relating to the operation of the Scheme.
Policies and strategies
COB 12.5.2(1) The Operator of a Scheme must ensure that there are well documented policies and strategies to meet the requirements in COB Rule 12.5.1, which include:(a) maintaining appropriate liquid buffers (including any reserves) and limits on illiquid assets; and(b)access to other resources (such as lines of credit).(2) The policies and strategies referred to in (1) must take into account, among other things:(a) the nature of the liquidity of the underlying investments in which Member contributions and earnings are invested;(b) if the underlying investments are securities traded on an exchange, liquidity on the exchange;(c) the benefit Payment Schedule, including any contingencies;(d) reserves established to meet fees, charges and any other outgoings of the Scheme; and(e) any other factors that may potentially affect the liquidity of the assets available for the payment of Member benefits.
COB 12.5.3The Operator of a Scheme must ensure that the Administrator adopts and implements appropriate mechanisms to:(a) measure, monitor, stress-test and manage the policies and strategies referred to in COB Rule 12.5.2;(b) assess whether the policies and strategies are adequate and are operating as intended in both normal and stressed conditions; and(c) address any gaps and failures identified.
COB 12.5.4The Operator of a Scheme must:(a) ensure that there are:(i) clear measures to identify and address liquidity stresses arising within the Scheme; and(ii) clear triggers to require the exercise of those measures; and(b) report promptly to the DFSA if any liquidity stresses are identified, and any action that is taken or to be taken.