GEN A3.1 Guidance

Roles of the Governing Body and the senior management

1. The Governing Body should adopt a rigorous process for setting and approving and overseeing the implementation of, the Authorised Person's overall business objectives and risk strategies, taking into account the long term financial safety and soundness of the firm as a whole, and the protection of its customers and stakeholders. These objectives and strategies should be adequately documented and properly communicated to the firm's senior management, Persons Undertaking Key Control Functions (such as the heads of risk management and compliance) and all the other relevant Employees. Senior management should ensure the effective implementation of such strategies in carrying out the day-to-day management of the Authorised Person's business.
2. The Governing Body, with the support of the senior management, should take a lead in setting the "tone at the top", including by setting the fundamental corporate values that should be pursued by the Authorised Person. These should, to the extent possible, be supported by professional standards and codes of ethics that set out acceptable and unacceptable conduct. Such professional standards and codes of ethics should be clearly communicated to those individuals involved in the conduct of business of the firm.
3. The Governing Body should review the overall business objectives and strategies at appropriate intervals (at least annually) to ensure that they remain suitable in light of any changes in the internal or external business and operating conditions.
4. The Governing Body should also ensure that the senior management is effectively discharging the day-to-day management of the Authorised Person's business in accordance with the business objectives and strategies that have been set or approved by the Governing Body. For this purpose, the Governing Body should ensure that there are clear and objective performance goals and measures (and an objective assessment against such criteria at reasonable intervals), for the Authorised Person and the members of its Governing Body and the senior management to ascertain whether the firm's business objectives and risk strategies are implemented effectively and as intended.

Internal governance of the Governing Body

5. The Governing Body should have appropriate practices and procedures for its own internal governance, and ensure that these are followed, and periodically reviewed to ensure their effectiveness and adequacy. These policies and procedures should cover a formal and transparent process for nomination, selection, and removal of the members of the Governing Body (see paragraph 2.2.14 of the RPP Sourcebook), and a specified term of office as appropriate to the roles and responsibilities of the member, particularly to ensure the objectivity of his decision making and judgement. Appropriate succession planning should also form part of the Governing Body's internal governance practices.
6. The Governing Body should meet sufficiently regularly to discharge its duties effectively. There should be a formal schedule of matters specifically reserved for its decision. The working procedures of the Governing Body should be well defined.
7. The Governing Body should also ensure that when assessing the performance of the members of the Governing Body and its senior managers and Persons Undertaking Key Control Functions, the independence and objectivity of that process is achieved through appropriate mechanisms, such as the assignment of the performance assessment to an independent member of the Governing Body or a committee of the Governing Body comprising a majority of independent members. See paragraph 2.2.15(b)(iii) of the RPP Sourcebook for the independence criteria for Authorised Firms and paragraphs 2.2.16 and 2.2.18 of the RPP Sourcebook for the independence criteria for Authorised Market Institutions.

Committees of the Governing Body

8. To support the effective discharge of its responsibilities, the Governing Body should establish its committees as appropriate. The committees that a Governing Body may commonly establish, depending on the nature, scale and complexity of its business and operations, include the audit, remuneration, ethics/compliance, nominations and risk management committees. Where committees are appointed, they should have clearly defined mandates, authority to carry out their respective functions, and the degree of independence and objectivity as appropriate to the role of the committee. If the functions of any committees are combined, the Governing Body should ensure such a combination does not compromise the integrity or effectiveness of the functions so combined. In all cases, the Governing Body remains ultimately responsible for the matters delegated to any such committees.

Independence and objectivity

9. The Governing Body should establish clear and objective independence criteria which should be met by a sufficient number of members of the Governing Body to promote objectivity and independence in decision making by the Governing Body. See paragraph 2.2.15(b)(iii) of the RPP Sourcebook for independence criteria).

Powers of the Governing Body

10. To be able to discharge its role and responsibilities properly, the Governing Body should have adequate and well-defined powers, which are clearly set out either in the legislation or as part of the constituent documents of the Authorised Person (such as the constitution, articles of incorporation and organisational rules). These should, at a minimum, include the power to obtain timely and comprehensive information relating to the management of the firm, including direct access to relevant persons within the organisation for obtaining information such as its senior management and Persons Undertaking Key Control Functions (such as the head of compliance, risk management or internal audit).

Role of user committees

11. An Authorised Market Institution should consider all relevant stakeholders' interests, including those of its Members and other participants, and issuers, in making major decisions, such as those relating to its system's design, overall business strategy and rules and procedures. An Authorised Market Institution which has cross-border operations should ensure that full range of views across jurisdictions in which it operates is appropriately considered in its decision-making process.
12. In some instances, an Authorised Market Institution may be required under the applicable Rules to undertake public consultation in relation to certain matters, such as any proposed amendments to its Business Rules under AMI Rule 5.6.5.
13. Effective mechanisms for obtaining stakeholder input to the Authorised Market Institution's decision-making process, including where such input is mandatory, include the establishment of, and consultation with, user committees. As opinions among interested parties are likely to differ, an Authorised Market Institution should have clear processes for identifying and appropriately managing the diversity of stakeholder views and any conflicts of interest between stakeholders and the Authorised Market Institution.
14. Where an Authorised Market Institution establishes user committees to obtain stakeholder input to its decision making, to enable such committees to be effective, an Authorised Market Institution should structure such committees to:
a. have adequate representation of the Authorised Market Institution'sMembers and other participants, and stakeholders including issuers. The other stakeholders of an Authorised Market Institution may include clients of its Members or participants, custodians and other service providers;
b. have direct access to the members of the Authorised Market Institution'sGoverning Body and members of the senior management as appropriate;
c. not be subject to any direct or indirect influence by the senior management of the Authorised Market Institution in carrying out their functions; and
d. have clear terms of reference (mandates) which include matters on which the advice of user committees will be sought. For example, the criteria for selecting Members, setting service levels and pricing structures and for assessing the impact on Members and other stakeholders of any proposed material changes to the Authorised Market Institution's existing arrangements (section 4.3 of AMI) and any amendments to its Business Rules (AMI Rule 5.6.4); and
e. have adequate internal governance arrangements (such as the regularity of committee meetings and the quorum and other operational procedures).
[Added] DFSA RM95/2012 (Made 14th June 2012). [VER29/06-12]
[Amended] DFSA RM119/2013 (Made 14th July 2013). [VER33/07-13]