For the First Time in the UAE

SCA Organizes Training Program in Collaboration with SEC

The program addresses innovation and best practice in regulating securities markets, compliance cases, means to deal with fraud, and international enforcement cooperation

For the first time ever, the Securities and Commodities Authority (SCA) organized a regional training program in collaboration with the US Securities and Exchange Commission (SEC). The program, tailored by experts from both sides under the supervision of SCA’s training center, was delivered to exchange best practices in financial market development and regulation by raising various issues facing regulators and contemplating their implications on investment and financial transactions from local and international perspectives.

The training program, delivered under the title “Innovation and Best Practice in Securities Market Regulation”, is in line with the UAE government’s commitment to its vision for innovation and performance development in accordance with the best international practices.

The program, attended by around 120 securities and finance specialists from 40 bodies in 12 countries, aimed at transferring knowledge between global regulators.

H.E. Dr. Obaid Al Zaabi, Acting CEO of SCA, delivered the keynote speech. He highlighted SCA’s progress in developing the regulatory framework in the UAE financial markets and the challenges that were faced and overcome.

Dr. Al Zaabi said that SCA worked to develop a framework through which UAE-based capital markets can continue to grow in a consistent and organized fashion to be an “environment favorable for investment”. Therefore, it adopted the recommendations of the Financial Sector Assessment Program (FSAP) conducted by the World Bank and the International Monetary Fund (IMF) on the regulatory framework of the UAE financial markets in 2012, based on the principles of the International Organization of Securities Commissions (IOSCO).

Dr. Al Zaabi indicated that, over the years, SCA issued regulatory procedures and licensing requirements for a wide range of financial services and products, including:

• Requirements for foreign and local equity listing, as well as for debt securities listing on the primary market.
• Listing and trading shares on the second market.
• Book-building procedures.
• Investment management regulations.

He indicated SCA’s instrumental role in having the UAE capital markets reclassified to “emerging markets” by MSCI and S&P Dow Jones and the efforts currently made to have them reclassified to the MSCI’s “developed market” classification.

Dr. Al Zaabi explained that the World Bank’s Competitiveness Report released in 2015 highlights some of SCA’s most notable achievements, including:

• The International Institute for Management Development (IMD) ranked the UAE first globally for effective corporate boards.
• The UAE was ranked first too in the MENA region for investor protection, according to the World Bank’s 2015 Ease of Doing Business Report.
• Out of 188 states, the UAE leapt 15 ranks for minority investor rights protection to 45, according to the World Bank’s report as well. The USA was ranked 35th and Haiti was ranked 185th.

Dr. Al Zaabi added that most of SCA’s new regulations mainly focus on addressing regulatory gaps that have not been previously addressed, such as: remedying key settlement issues, especially those surrounding “Delivery Versus payment”, or “DVP”, as well as other rules related to the issuance of clearer transparency and disclosure requirements, plus a wide range of other regulatory requirements in the UAE capital markets.

Dr. Al Zaabi reiterated that SCA was recently actively engaged in:

• IPO regulations, which address mechanisms for share offering and capital increase, including licensing different parties in an offering.
• Detailed mutual fund regulations, which are in compliance with the Undertakings for the Collective Investment of Transferable Securities (UCITS) funds.
• Merger, acquisition, and crowd funding regulations, as well as options and the introduction of preferred stocks in the UAE.
• Amendments to the corporate governance resolution through the introduction of provisions for minority shareholder rights protection and for related-party transactions.
• Introduction of corporate discipline standards, which address conduct of board members, as well as matters related to shareholder rights (voting and dividend distribution, for example).
• Inclusion of specific quotas for female participation on boards of listed entities. The focus on women’s representation on corporate boards is a matter of great importance to the UAE government.
• Creating an Investor Relations (IR) Department in all listed companies.
• Drafting detailed Credit Rating Regulations (CRR) for Credit Rating Agencies (CRA), based on the best international practices.

Innovation and Future Outlook for Securities Regulation

Dr. Al Zaabi said that pursuant to the directives of the wise leadership, which launched the Innovation Year initiative and the new National Innovation Strategy aimed at making the UAE one of the most innovative countries in the world within a period of seven years, SCA took the lead in creating a fertile regulatory environment that nurtures innovation in financial technology, or Fin Tech.

Topics and Speakers

The four-day program, held at SCA’s Dubai office under the patronage of the First Gulf Bank, addressed various topics, including inspection, compliance, and enforcement programs relating to market participants; responses to market abuses; and comparisons and contrasts between regulatory systems around the world. It also highlighted the US best practices.

Speakers used real-life examples about market fraud and the efforts made to explore the regulatory and statutory instruments that capital market regulators need to encounter these challenges. Among the SEC experts, who spoke and held workshops at the program, were:

• Erin McCartney, who is a Senior Special Counsel in the SEC’s Office of International Affairs.
• Matthew Greiner, who is a Branch Chief in the SEC’s Office of International Affairs (OIA).
• Dalia Osman Blass, who is an Assistant Chief Counsel in the Division of Investment Management’s Office of the Chief Counsel.
• Peter B. Driscoll, who is the first Chief Risk and Strategy Officer in the Office of Compliance Inspections and Examinations (OCIE).

 Compliance Programs and Enforcement

The program—attended by 110 participants from around 10 countries, representing more than 30 bodies from the UAE, the GCC states, and foreign and Arab states—addressed how to develop and manage an effective compliance program for broker-dealers, investment advisors, and other market licensees and registrants. It covered the importance of compliance programs and the role of chief compliance officers.

It also addressed considerations in regulating investment advisors and investment companies and identified common conflicts of interest. It also identified regulatory practices and procedures that can be used to mitigate the damaging effects of these conflicts.

The program also addressed money laundering and the securities industry, clarifying the industry’s responsibility to detect and report suspicious activities, how to develop an Anti-Money Laundering (AML) compliance program, and regulators’ responsibility to examine the industry’s compliance with AML obligations.

The program also addressed broker-dealer enforcement and specific investigative steps, and focused on the types of cases brought against broker-dealers and their associated persons.

Inspection and Supervision of Brokerage Companies

Above and beyond, the program addressed the key elements in building an effective examination program and risk-based supervision by cultivating a culture of compliance for market participants, the best practices in developing a compliance program for broker-dealers; investment advisors; and other market licensees and registrants. It also included a discussion of complaints, tips, and referrals, as well as how to manage a risk-based examination program and enforcement priorities.

International Enforcement Cooperation

International enforcement cooperation was also raised, taking into consideration the latest developments that resulted in the internationalization of the world’s securities markets and the increased frequency of cross-border trading activity, which have created a more challenging enforcement environment. Therefore, securities regulators across the world need to cooperate in providing access to information necessary for the prevention, detection, and prosecution of securities law violations. The US international enforcement efforts and techniques were also discussed, indicating the role of the IOSCO’s Multilateral Memorandum of Understanding.

The last day of the program addressed financial accounting and disclosure fraud, as well as foreign corrupt practices by stock issuers. This day’s sessions covered the basic legal requirements governing financial reporting, the sources from which these investigations arise, the common types of financial fraud schemes, and the documents that should be obtained and reviewed by the company and its auditor.