Consultation Paper No. 27 Prudential — Investment, Insurance Intermediation and Banking Business (PIB) and Prescribed Forms and Notices (PFN)

APRIL 2006


Download this Consultation Paper in PDF formatPDF format.

•   Download a copy of Annexure 1 — Proposed changes to the prudential returns (PIB forms) in the PFN in PDF formatPDF format.
•   Download a copy of Annexure 2 — Proposed changes to the Instruction Guidelines in form PIB 11 of the PFN Module in PDF formatPDF format.
•   Download a copy of Annexure 3 — Proposed changes to the Rules in the PIB module in PDF formatPDF format.

1. Introduction

This paper consults on the DFSA’s proposed changes to the Rules and the associated returns in the PIB and PFN module of the DFSA Rulebook respectively.

These proposed changes are attached in the following Annexures:
Annexure 1 — proposed changes to the prudential returns (PIB forms) in the PFN module.
Annexure 2 — proposed changes to the Instruction Guidelines in form PIB 11 of the PFN module.
Annexure 3 — proposed changes to the Rules in the PIB module.
The draft Rules are published for consultation purposes only. Please note that, although the draft Rules are in near final form, the DFSA reserves the right to amend the drafts at its sole discretion.

The Rules will be made under powers contained in the Regulatory Law 2004.

Comments are invited on any aspect of the changes proposed in this paper, on both the principles and the detailed drafting. The DFSA would be particularly interested to have the views of firms considering using the proposed changes and views on how these changes compares with those in other major centres. In the light of the comments received, the DFSA may determine to adopt in whole, or in part, the proposals outlined in these papers, or may amend the proposals.

Anyone wishing to submit comments should provide details of the organisation he or she represents. The names of commentators and the content of their submissions may be published on the DFSA website and in other documents to be published by the DFSA. If you wish your name to be withheld from publication, please indicate this when you make your submission.

Any comments should be addressed to:
Ms Roberta Julfar
Legal Counsel
PO Box 75850
Dubai, UAE

or e-mailed to

All comments should be provided in writing, on or before Friday 12 May 2006.
2. The DFSA Rulebook

The Regulatory Law 2004 provides the DFSA with a wide range of powers, including powers to make Rules and to issue Guidance. This Guidance is not binding on the DFSA, nor does it create a “safe harbour” protecting those who comply with it from action for breach of the underlying Rule.

The Rules together make up a Rulebook containing a number of modules. The DFSA Rulebook may be viewed on the DFSA’s website ( along with all the DIFC Laws and Regulations.

The DFSA has power to waive or modify Rules, and is prepared to use this to adapt the Rules to specific circumstances which may arise.
3. Interpreting the Rulebook

Defined terms are identified throughout the Rulebook by the capitalisation of the initial letter of a word or of each word in a phrase and are defined in the Glossary (GLO). Unless the context otherwise requires, where capitalisation of the initial letter is not used, an expression has its natural meaning.

Every provision in the Rulebook must be interpreted in the light of its purpose. The purpose of any provision is to be gathered first and foremost from the text of the provision in question and its context among other relevant provisions. A provision means every type of provision, including Rules and Guidance.

Where reference is made in the Rulebook to another provision of the Rulebook or other DIFC legislation, it is a reference to that provision as amended from time to time. If a provision in the Rulebook refers to a communication, notice, agreement, or other document ‘in writing’ then, unless the contrary intention appears, it means in legible form and capable of being reproduced on paper, irrespective of the medium used. Expressions related to writing must be interpreted accordingly. Any reference to ‘dollars’ or ‘$’ is a reference to United States Dollars unless the contrary intention appears. References to Articles made throughout the Rulebook are references to Articles in the Regulatory Law 2004 unless otherwise stated.

Unless the contrary intention appears:

•  words in the Rulebook importing the masculine gender include the feminine gender and words importing the feminine gender include the masculine; and
•  words in the Rulebook in the singular include the plural and words in the plural include the singular.
Unless the contrary intention appears, a day or business day refers to:
•  in relation to anything done or to be done in (including to be submitted to a place in) the UAE any day which is not a Friday or Saturday or an official UAE bank holiday; and
•  in relation to anything done or to be done by reference to a market outside the UAE any day on which that market is normally open for business.
4. Purpose and Summary of the proposed changes

The changes recommended to the PIB forms can be grouped in three main categories:
•  Changes to the PIB forms to incorporate the general format of reporting financial information (mainly the results of operations and the financial position) under International Financial Reporting Standards (IFRS);
•  Changes to the related guidance notes (in PFN PIB 11) arising out of the above; and
•  Changes to fix some of the technical glitches (both in the forms as well as the guidance) such as wrong internal references, typo errors etc.

Changes to incorporate the general format of reporting financial information under IFRS

DFSA requires, in GEN Rule 8.2.1, the Authorised Firms to prepare and maintain all financial accounts and statements in accordance with the International Financial Reporting Standards (IFRS). Therefore, it is indeed very important, for a prudential supervisor, to make sure that the financial information provided by an Authorised Firm in its prudential returns is consistent with those presented in the Authorised Firms’ published financial statements. Although, often, it is much easier to reconcile the overall profit/loss or assets/liabilities figures it could become a time consuming exercise to reconcile individual line items.

Therefore, it was considered appropriate to align the PIB forms in line with the general format of reporting financial information under IFRS. As you will note, these changes are reflected mainly in the PIB forms for reporting the profit and loss (PFN PIB 3) and the balance sheet (PFN PIB 1) as the other PIB forms seek regulatory information and therefore has little or no relevance when considered in the context of financial information presented under IFRS.

In this respect, it should be appreciated that there is not one standard format for presenting the financial information under IFRS. Although the individual accounting standards set out disclosure requirements with respect to the areas being covered (be it item of income, expenditure, asset, liability or other related aspects) by them, the actual application to an entity will depend on various factors such as materiality, relevance etc.

The other two categories of suggested changes are self explanatory. However, we wish to point to the important changes — one relating to the way in which cumulative maturity mismatches are calculated in the liquidity return (form PFN PIB 8) and certain changes in form PFN PIB 5, relating to calculation of Expenditure Based Capital Minimum requirements.

Proposed changes to the prudential returns (PIB forms) in the PFN module are highlighted in Annexure 1 and the proposed changes to the Instruction Guidelines in form PFN PIB 11 of the PFN module, arising mainly out of the proposed changes to the PIB forms, are highlighted in Annexure 2.

Amendments to the Rules in the PIB module

The suggested amendments to the PIB Rules relate to the definition of exempt Exposure — PIB Rule A4.8.1(e).

The current PIB Rule A4.8.1(e) treats Exposures with a maturity of one year or less to Zone 1 deposit takers and Zone 1 principal dealers as exempt Exposures for the purpose of monitoring concentration risk and compliance with relevant limits. Therefore, as per the current Rule, there can be many instances wherein Exposures to weak and risky deposit takers would be afforded the benefit of exempt Exposure while much stronger banks operating in jurisdictions not listed under Zone 1 definition would be denied the benefit of exempt Exposure.

Considering the nature of countries listed under Zone 1 definition as per GLO module and the diverse range of deposit takers operating in each of those countries, the treatment defined in the current rule was not considered to be consistent with the risk-sensitive capital adequacy framework, set out in the PIB module.

The suggested amendments aim to remove the reference to Zone 1 countries in defining Exposures to banks qualifying as exempt Exposures. To ensure that our approach remains risk sensitive and conservative, it is also recommended that the exempt Exposure qualification be restricted to Exposures to deposit taking or principal dealing institutions.

Proposed amendments to the PIB Rules are highlighted (as underlined text), in Annexure 3.