Consultation Paper No. 43 Amendments Concerning the Financial Markets Tribunal and Regulatory Appeals Committee
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Why are we issuing this paper?
1. This Consultation Paper seeks public comment on the DFSA's proposals to
recommend to the Ruler to amend the Regulatory Law and the Markets Law.
References throughout this paper to the DFSA's proposals to amend these
laws are for convenience only and not intended to imply that the DFSA has
the power to amend these laws. Only the Ruler of Dubai has the authority to
amend or enact DIFC laws. The DFSA's proposed amendments, which are
set out in Annex A, are intended to clarify the role and jurisdiction of the
Financial Markets Tribunal ("FMT") and the Regulatory Appeals Committee
("RAC") and enhance the independence of the FMT.
2. In summary the key proposals:
(a) eliminate the provisions that allow DFSA Board and RAC members to
be appointed to the FMT and FMT members to be appointed to RAC,
to enhance FMT independence;
(b) extend the statutory immunity provisions to DFSA directors, tribunal
and committee members;
(c) provide each of the RAC and FMT with the power to transfer
proceedings to the other tribunal where there is a common issue of
fact or law, the parties consent and it is in the interests of the DIFC,
justice and efficiency;
(d) clarify that the FMT's jurisdiction is restricted to FMT regulatory
proceedings and does not include the determination of private inter
party or commercial disputes;
(e) provide that the FMT's decision on an appeal of an Exchange decision
is final and cannot be appealed further to the DIFC Court.
Who should read this paper?
3. The proposals in this paper would be of primary interest to regulated entities
and persons, including their legal counsel, as well as financial market
participants generally.
How is this paper structured?
4. In this paper, we set out:
(a) Background in paragraphs 7 to 23;
(b) Scope, purpose and details of the proposals in paragraphs 23 to 44;
(c) Annex A — Draft amendments for the Regulatory and Markets Laws.
How to provide comments?
5. All comments should be forwarded to the person specified below. You may, if
relevant, identify the organisation you represent in providing your comments.
The DFSA reserves the right to publish, including on its website, any
comments you provide, unless you expressly request otherwise at the time of
making comments.
What happens next?
6. The deadline for providing comments on these proposals is 7 May 2007.
Once we receive your comments, we will consider if any further refinements
are required to these proposals. We will then progress the changes for
enactment by the Ruler of Dubai. You should not act on these proposals until
the relevant changes to the Regulatory Law and Markets Law are made and
in force. We will issue a notice on our website telling you when this happens.
Comments to be addressed to:
Joyce C. Maykut QC
General Counsel
DFSA
PO Box 75850
Dubai, UAE
or e-mailed to: ebenedikovicova@dfsa.ae
Background
7. The DFSA's regulatory tribunal regime consists of an internal appeals
committee called the Regulatory Appeals Committee and a disciplinary
tribunal called the Financial Markets Tribunal. The DFSA's tribunal regime
was, in part, modelled on that of the FSA but adapted to reflect the DIFC's
unique circumstances. The primary rationale for two tribunals was to have
purely regulatory or administrative decisions treated differently than
enforcement or disciplinary decisions. This was to ensure that the DFSA
retained control of regulatory discretion and policy and to ensure that
enforcement or disciplinary matters were considered by a body operationally
independent of the DFSA Executive and Board. In addition, the tribunal
structure was adapted to reflect a much smaller market and the absence,
apart from the DIFC Court, of a well developed independent governmental
and administrative tribunal infrastructure of the kind that exists in the UK and
many other common law jurisdictions.
8. However, it became apparent in a subsequent analysis that the DFSA's
bifurcated tribunal regime lacked jurisdictional clarity. It also became apparent
that some of the original legislative intent for the regime had become
obscured as the remits and composition of the RAC and FMT evolved. Two
particular areas of concern related to the independence of the FMT and the
FMT's role in adjudicating disputes.
9. The proposals in this paper are primarily intended to address that lack of
clarity and enhance the independence of the FMT. Some background on the
legislative history may be useful in understanding the specific amendments
being put forward in this paper.
RAC
10. When the DFSA's tribunal regime was designed, RAC was intended to
function as an "internal" appeal mechanism for DFSA Executive decisions
regarding regulatory (administrative as opposed to disciplinary or
enforcement) matters. The thinking was that, while it was important for
affected parties to be able to review the exercise of regulatory discretion by
the DFSA Executive, it was essential for the regulator, and not the courts, to
have the final say about who was allowed into the "regulated arena". Simply
put, it was necessary to have a check or second 'set of eyes' on the
Executive's exercise of regulatory discretion, without losing regulatory control.
Consequently, licensing and listing decisions were put under the appellate
jurisdiction of RAC. (At the time RAC was established, the DFSA was the
Listing Authority. It was subsequently transferred to the DIFX.)
11. The intention was for RAC to consider appeals on both fact and law, and
although the possibility of some form of limited review of RAC decisions by
the DIFC Court was not ruled out, decisions of RAC were to be final.
12. The Regulatory Law that was eventually enacted empowers RAC to conduct
a full merits review of Executive decisions that come before it on appeal.
Appropriate to its function, RAC is restricted to determining what action the
DFSA should take on regulatory matters and to remitting the matter to the
Chief Executive with directions. Rather than being final as initially proposed,
RAC decisions are subject to independent oversight in that they may be
reviewed by the DIFC Court by way of judicial proceedings on a point of law.
Members to RAC are appointed by the Board and may include Board
members, persons independent of the Board and Executive, as well as
members of the FMT.
13. The RAC's primary jurisdiction is described in Article 27 of the Regulatory
Law and includes appeals specifically provided for in the Rules or any other
DIFC Law. Under Article 27 RAC is empowered to hear and determine
appeals of DFSA Executive decisions relating to the authorisation, licensing
or registration of Authorised Market Institutions, Authorised Firms,
Recognised Bodies, Recognised Members, Authorised Individuals, Ancillary
Service Providers and Auditors.
14. The legislative intent was not to give RAC appellate jurisdiction over all DFSA
Executive decisions, only key regulatory decisions. This means that where no
right of appeal is specifically prescribed, there is no right of appeal to RAC. It
also means if RAC's jurisdiction is to be expanded it must be specifically
prescribed in the Laws or Rules. Consequently where no right of appeal is
specifically given in the Law in relation to a decision, no general right of
appeal to RAC can be inferred.
15. RAC's jurisdiction was expanded under the Markets Law, the Law Regulating
Islamic Financial Business and the Collective Investment Law to include
appeals of regulatory or administrative decisions related to Islamic finance
institutions and windows, the regulation of the capital markets and collective
investment funds.
16. The Regulatory Law provides that RAC is a Board committee to be chaired by
a non-executive member of the Board and it may include other persons
independent of the Board and Executive. The Law specifically provides that
Board members and FMT members may be appointed to RAC, although to
date no FMT members have been appointed to RAC. Currently four Board
members and one independent person have been appointed as members of
RAC. Subject to the provisions appointing FMT and Board members to RAC,
the Regulatory Law prohibits the appointment of any officer, director,
employee or agent of the DFSA or of any other agency or body of the DIFC
established under Dubai Law. The Law also requires that all persons
appointed to RAC must have relevant qualifications, expertise and experience
in the regulatory aspects of financial services and related activities.
FMT
17. The FMT was established under the Regulatory Law to function as a
disciplinary and enforcement tribunal.
18. The primary jurisdiction of the FMT is described in Article 32 of the Regulatory
Law. It empowers the FMT to hear and determine proceedings commenced
by the DFSA relating to an alleged breach of the Regulatory Law or Rules or
any other DFSA administered legislation as well as any matter that may be
prescribed in the Rules or other law. As with the RAC, this means that the
FMT's jurisdiction must be specifically prescribed if it is to be expanded.
19. Under the Markets Law, the FMT's remit was expanded substantially taking it
from a purely disciplinary tribunal, to a broadly empowered financial services
markets tribunal with a remit and powers comparable to other international
financial services regulatory tribunals.
20. Consequently the FMT's jurisdiction now includes the authority:
(a) under Article 32 of the Regulatory Law to hear and determine
proceedings commenced by the DFSA relating to an alleged breach of
DFSA administered laws or Rules;
(b) under Article 54 of the Markets Law to hear and determine
applications brought by the DFSA for a broad range of permanent,
interim and ex parte orders, irrespective of whether a contravention
has occurred (DIFC "public interest" orders);
Some of these DIFC "public interest" orders have a market related focus, for example, cease trading orders, orders prohibiting persons from offering securities or from being involved in listed companies, orders withdrawing exemptions in the Offered Securities, Takeover and Market Conduct Rules, orders relating to takeover offer activities and orders directing market disclosure. Others are much broader, for example, orders directing a person to submit to a review of his practices and procedures, prohibiting persons from acting as directors or officers of any company, reprimanding and fining persons or ordering them to disgorge ill-gotten gains or any other order that the FMT thinks fit in order to maintain the integrity of the DIFC and to ensure an efficient, honest, fair and transparent market.
Some of these DIFC "public interest" orders have a market related focus, for example, cease trading orders, orders prohibiting persons from offering securities or from being involved in listed companies, orders withdrawing exemptions in the Offered Securities, Takeover and Market Conduct Rules, orders relating to takeover offer activities and orders directing market disclosure. Others are much broader, for example, orders directing a person to submit to a review of his practices and procedures, prohibiting persons from acting as directors or officers of any company, reprimanding and fining persons or ordering them to disgorge ill-gotten gains or any other order that the FMT thinks fit in order to maintain the integrity of the DIFC and to ensure an efficient, honest, fair and transparent market.
(c) under Article 56(2) of the Markets Law to hear and determine
'commercial proceedings' between persons to the extent they arise out
of issues enumerated in 56(2). These include issues arising out of the
supervision of an AMI, an offer of securities, a takeover offer, merger
or acquisition of shares or any matter subsequently prescribed in the
Law or Rules;
(d) under Article 57(3) of the Markets Law to make at the conclusion of
any proceedings, a finding or declaration of unacceptable
circumstances or contravention of the Law or Rules and, in addition to
any orders it could make under Article 54, a variety of orders as broad
as an order "in resolution of any commercial proceeding" an order
"requiring a respondent to do any act or thing" and any "consequential
orders the FMT sees fit following a finding or the making of a
declaration"; and
(e) under AMI Section 14 of the AMI Module in the DFSA Rulebook to hear
and determine appeals from certain exchange decisions.
21. All FMT decisions are currently subject to a full appeal to the DIFC Court.
22. As for composition, the FMT was intended to be an "external" disciplinary
tribunal which operated independently of the Board and Executive. Currently
all FMT members, although appointed by the DFSA Board, are independent
or 'outside' appointments. Although the original legislative intent was not to
permit Board members to be FMT members, the final legislative drafting
permitted the FMT to include Board and RAC members as well as persons
independent of the Board and Executive. The Law also requires, as with RAC
members, that all persons appointed to the FMT must have relevant
qualifications, expertise and experience in the regulatory aspects of financial
services and related activities. No Board or RAC members have been
appointed to the FMT. The current FMT members are independent or
'outside' appointments.
Scope, purpose and details of the proposed amendments
Cross tribunal appointments
23. Allowing RAC and Board members to be appointed to the FMT was intended
to enable the FMT to utilize the financial services regulatory experience and
expertise of Board members if necessary without diminishing the actual
independence of the FMT. However, these provisions were never acted upon
and no RAC and Board members have been appointed to the FMT and all
current FMT members are independent or 'outside' appointments. The DFSA
believes that the FMT's primary role as an independent "external" tribunal will
be clarified and enhanced by eliminating the provision enabling DFSA Board
and RAC appointments.
24. Accordingly, to enhance the independence of the FMT, the DFSA is
proposing to amend:
(a) Article 26 of the Regulatory Law to delete the provisions permitting,
and add provisions prohibiting, the appointment of FMT members to
the RAC;
(b) Article 31 of the Regulatory Law to delete the provisions permitting,
and add provisions prohibiting, the appointment of RAC and DFSA
Board members to the FMT.
RAC
25. The Regulatory Law provides that RAC is to be chaired by a non-executive
member of the Board. As explained, this is to maintain regulatory control and
ensure consistency in the application of regulatory discretion. However,
because there are independent members appointed to RAC, the DFSA is of
the view that it is equally important to ensure that each RAC appeal panel be
chaired by a Board member.
26. Accordingly, the DFSA is proposing to amend Article 26(9) of the Regulatory
Law by requiring the chairman of RAC when selecting three RAC members
for a RAC appeal panel, to also require that at least one of the members be a
Board Member who will serve to chair the appeal panel.
Statutory Immunity
27. The DFSA is of the view that it is necessary to confirm to avoid any doubt that
the statutory immunity provisions available to DFSA employees, officers and
agents are also available to DFSA directors, tribunal and committee
members. This means that DFSA directors, tribunal and committee members,
cannot be held liable for anything done or omitted to be done in the
performance of their functions or duties so long as the act or omission is not
done in bad faith.
28. Accordingly, the DFSA is proposing to amend Article 12(2) of the Regulatory
Law to ensure the statutory immunity provisions cover a DFSA director,
tribunal or committee member.
Transfer of Common Interest Proceedings
29. The DFSA is of the view that providing each of the RAC and FMT with the
flexibility and discretion to transfer proceedings to the other tribunal is in the
interests of the DIFC, justice and efficiency if there is a common issue of fact
or law, if it is in the interests of the DIFC and if the parties consent. Tribunal is
used here to refer to the FMT or RAC.
30. Given that the RAC's jurisdiction under Article 27 of the Regulatory Law and
the FMT's jurisdiction under Article 32 of the Regulatory Law and 56 of the
Markets Law intersect in several areas, there is a possibility of an appeal and
proceeding arising out of the same or related facts being before the RAC and
the FMT at the same time even though the issues and relief sought before
each tribunal would have a different focus and purpose. Such a result may not
be efficient. Accordingly, the DFSA is of the view that it is appropriate to
provide the RAC and FMT with the discretion to refer proceedings before one
tribunal to the other where there is a common issue of fact or law, the parties
consent and it is in the interests of the DIFC, justice and efficiency.
31. To empower the RAC and the FMT with this discretion and to ensure that they
are statutorily equipped to give the appropriate relief and to preserve the
rights of the parties in such a transfer, the DFSA is proposing to add new
provisions to Articles 27 and 32 of the Regulatory Law.
32. The additional provisions to Article 27 of the Regulatory Law, provide the RAC
with the necessary powers to accomplish this proposal and the additional
provisions to Article 32 of the Regulatory Law, provides the FMT with the
same powers. This means that there will be no substantive change in how
DFSA Executive regulatory decisions will be considered and dealt with on
appeal and that there will be no substantive change in how enforcement or
disciplinary proceedings are determined and dealt with.
33. Consequently, the proposed amendments are intended to:
(a) Enable the RAC chairman or the FMT president (as the case may be),
on his own motion or that of a party to the appeal or proceeding, to
direct that the appeal or proceeding be referred to the other tribunal for
determination as directed if there is a common question of law or fact
in the appeal and proceeding, the parties consent and it is in the
interests of the DIFC, justice and efficiency.
(b) Provide the receiving tribunal with the same powers and remedies as
the referring tribunal where an appeal or proceeding has been referred
under these provisions including the power to direct that the
proceeding or appeal be:
i. heard at the same time or following the other proceeding or
appeal (as the case may be); or
ii. stayed until the determination of the other proceeding or appeal
(as the case may be).
(c) Preserve the rights of a person to appeal or apply for judicial review
where an appeal or proceeding has been referred under these
provisions.
FMT's Regulatory Jurisdiction
34. The final substantive amendments relate to the FMT's jurisdiction under
Article 56 and the accompanying powers in Article 57 of the Markets Law.
The DFSA is of the view that the FMT's principal role is as an enforcement
and disciplinary financial markets tribunal. As such, the FMT should only hear
and determine regulatory driven or regulatory relief related proceedings and
not private inter-party disputes or appeals of DFSA Executive decisions.
35. The current reference in Article 56(2) of the Markets Law to "a proceeding
between persons" and to "a commercial proceeding" in Articles 56(3) and
57(3)(e) of the Markets Law, may lead parties to incorrectly conclude that the
FMT has jurisdiction to hear and determine private inter-party disputes. This
was not the legislative intent. The nature of private disputes is such that the
adjudicating body, in addition to determining liability, will invariably be asked
to assess and award damages. The DFSA believes that this is the role of the
DIFC Court, which has the jurisdiction and necessary powers to properly
adjudicate private inter-party disputes.
36. Accordingly, the DFSA is proposing amendments to remove any suggestion
that would lead a person to conclude that the FMT's jurisdiction includes the
determination of private inter-party disputes even though they may be related
to the provision of some financial service in the DIFC.
37. The DFSA is also proposing to amend Articles 56 and 57 of the Markets Law
to clarify that the FMT's jurisdiction is restricted to FMT regulatory
proceedings, which does not include the determination of appeals of DFSA
Executive decisions, private inter party or commercial disputes. The words
"commercial proceedings" and "proceedings between persons" will be deleted
and replaced with "Financial Market Tribunal proceedings".
38. A Financial Market Tribunal proceeding under this Part is intended to include
proceedings brought by the DFSA as well as proceedings brought by a
person seeking relief which is regulatory in nature as opposed to the kind of
relief sought by parties in a private dispute. For example, a proceeding
brought by a person seeking an order from the Financial Markets Tribunal
under Article 57(3)(b) requiring a respondent to comply with the Offered
Securities Rules or the Takeover Rules relating to an issue arising out of a
takeover, Takeover Offer, merger or acquisition of shares under Article 56(2)(c), would be considered to be a Financial Market Tribunal proceeding.
39. To ensure that the proceedings before the Financial Markets Tribunal remain
'regulatory' driven, the DFSA is proposing that no proceedings may be
brought by a person under Article 56 without the consent of the DFSA or the
Financial Market Tribunal.
Exchange Appeals
40. Under the DIFX's Rules, certain decisions made by the DIFX are subject to an
internal appeal process. Under these same Rules, parties aggrieved by a
decision of the DIFX must complete the appeals process provided by the
Exchange Rules before pursuing any further right of review or appeal to a
tribunal or court that may be prescribed in DIFC Law or DFSA Rules.
41. When the DIFX became authorised, the DFSA amended the provisions in the
AMI Module of the Rulebook to allow for a limited right of appeal from
Exchange decisions to the FMT as long as the DIFX internal appeal process
had been exhausted first.
42. The DFSA is of the view that the Exchange internal appeal process coupled
with the appeal to the FMT effectively gives aggrieved parties the right to two
appeals or reviews. Therefore, a further full appeal to the DIFC Court from the
decision of the FMT is unwarranted.
43. Accordingly, the DFSA is proposing to amend Article 56(5) of the Markets
Law to provide that determinations of the FMT regarding appeals of Exchange
decisions are final and may not be appealed further to the DIFC Court.
Miscellaneous
44. The DFSA is proposing to amend Article 9(2) of the Markets Law to delete the
requirement on the DFSA to "obtain the approval of the Board of Directors"
before issuing a direction to an AMI, as there is a right of appeal to the RAC
for any such direction under Article 9(1). Requiring the approval of the Board
defeats the purpose of having a right to appeal to RAC. The DFSA is also
proposing to amend Article 9(3) of the Markets Law to provide a right of
appeal to RAC for directions made to an AMI by the DFSA under Article 9(2).
Download this Consultation Paper in PDF format.
Download Annex A — Draft Amendments to the Regulatory Law and Markets Law in PDF format.