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]