Administrative Resolution No. (123/CEO) of 2017 Concerning the Regulatory Controls for Financial Activities and Services

§Preamble

Administrative Decision No. (123 /R.T) of 2017 Concerning the Regulatory Controls for Financial Activities and Services The Chief Executive Officer, having perused

The Federal Law No. 4 of 2004 concerning the Emirates Securities and Commodities Authority and Market, as

amended, and the decisions issued thereunder;

The Federal Law No. 2 of 2015 concerning the Commercial Companies;

The Cabinet’s Resolution No. 13 of 2000 concerning the Regulations as to the Functioning of the Securities and

Commodities Authority, as amended;

The Chairman of the SCA Board of Directors’ Decision No. (38/R) of 2015 Assigning Dr. Obaid Al Zaabi as Acting

Chief Executive Officer of the Securities and Commodities Authority;

The Administrative Decision No. (34/R.T.) of 2016 concerning the Regulatory Controls for Financial Activities and

Services; and

Based on the requirements for the best interest of the work,

Has decided:

§Article 1

The fit and proper criteria is intended to determine the fitness and competence of the company or entity applying

for license or already licensed, as the case may be, and the relevant persons such as the Board members and

partners of the company or the entity as well as their respective employees, both accredited or non-accredited, in

order to evaluate their records as per the evaluation criteria and principles stated in this Decision.

Financial Capacity

§Article 2

This is one of the most important criteria to measure integrity in financial transactions. It is evaluated by ensuring

that the company or the relevant persons have not sustained any cases of default in meeting their financial

obligations based on the following evaluation principles:

I. For the Company:

1. Meeting the financial obligations related to the licensing conditions such as capital requirements or the provision

of a guarantee;

2. Commitment towards payment of bank loans and financial obligations arising from conducting the activity or

under a court order or judgment;

3. Compliance with the financial solvency criteria issued by the concerned authorities in the State (SCA/the Central

Bank);

4. No frequently bounced cheques;

5. The availability of a credit rating or credit assessment of the company;

6. No receiver has been appointed over the assets of the company, even if it is not subject to liquidation procedures.

7. Never stopped the payment of commercial debts even if this is not associated with bankruptcy declaration.

II. For the Relevant Persons:

1. Enjoying full capacity, not flawed by any case of incapacity (deficient or lack of legal capacity);

2. Never stopped the payment of commercial debts even if this is not associated with bankruptcy declaration.

Should have been rehabilitated in case of bankruptcy declaration.

3. Commitment towards the payment of bank loans for commercial purposes and the financial obligations arising

from a court order or judgment.

4. No frequently bounced cheques relating to business activities..

Competence

§Article 3

This criterion measures the competence level of the company and the relevant persons. It is evaluated by

considering the requirements for operation in the capital markets in the State, showing the minimum needed

conditions to be met to license a company and evaluating the technical and technological systems thereof, or

those conditions related to the relevant persons such as their educational and professional qualifications, past

practical experience and gained skills, based on the following evaluation principles:

I. For the Company:

1. Commitment to provide and constantly update effective internal regulations and internal control and risk

management systems as well as compliance with the rules of separating the activities in a manner to ensure that

the company performs its activity in a sound legal and regulatory manner.

2. Commitment to provide preventive, corrective and motivating procedures on a timely basis, as well as

precautionary measures to manage conflicts of interests and functions.

3. Commitment to appoint competent and experienced employees, and having the ability to direct and lead them;

and making decisions in a sound manner in accordance with the applicable legislation.

4. The ability to perform the licensed activities with competence and effectiveness, and compliance by the

employees with the applicable legislation.

5. Maintaining the customer interests and using professional diligence to improve and upgrade the quality of

services to achieve customers satisfaction.

II. For the Relevant Persons:

1. Suitability of the university qualification or specialized professional certificates, and relevance thereof to the

nature of functions;

2. Availability of practical experience and suitability with the nature of the job;

3. Continuous professional development.

4. Familiarity with the legislation related to the functions of the SCA, the markets and the profession in general.

Honesty and Integrity

§Article 4

This is a personal criterion connected to the relevant persons. since it is associated with the behavioral and ethical

aspects. This criterion can be evaluated based on the following principles:

1. Adherence to professional ethics and conduct;

2. Observance of honesty, sincerity and integrity in the performance of duties and responsibilities and using the

required professional diligence (due diligence);

3. Refraining from engaging in any business that conflicts with the interests of the company or the clients; or that

affects the functioning and order of the Market, or involving illegal or unacceptable acts as per the professional

standards or the instructions of the company;

4. Maintenance of confidentiality of information and data related to the clients and job functions; and

5. Practicing the functions that are allowed to be combined after obtaining the SCA approval, and without any

conflict in interests and functions.

Compliance

§Article 5

This is a criterion related to the level of compliance and adherence by the company or the relevant persons with

the applicable legislation. It can be evaluated based on the following principles:

1. Compliance with the legislation, including the laws, regulations, controls, circulars and decisions whether those

related to the practice of the activity or applicable within or outside the State;

2. The professional record issued by the SCA or any other supervisory or regulatory authorities within or outside

the State is free of administrative penalties;

3. No lawsuits, reports or prosecution investigations, whether within or outside the State, in relation to honesty and

integrity;

4. No judgment or court order has ever been awarded by the courts or the prosecution against the company or the

relevant persons in relation to fidelity, fraud, cheating or otherwise which would damage the reputation of the

market, its member, traders or others; and

5. The name of the company/ person has not been listed on the sanction lists issued by the United Nations and

other international organizations, especially those concerned with anti-money laundering and counter terrorism

funding.

Revocation or Rejection of Licensing or Accreditation by other Regulators to Practice the Activity

§Article 6

This criterion applies to the company and the relevant persons. It must be applied by examining the cases of

revocation or rejection of licensing or accreditation by other regulators or governmental institutions, whether local

or international. This criterion is evaluated by obtaining a complete list of the licensed activities or accredited

professions and the places of practice thereof. Then, a copy of the professional record of the natural person or the

company shall be obtained in these places. It can also be evaluated by direct communication with other regulators

to obtain their input about the natural person or the company.

§Article 6 bis — *

The Authority may apply the bases of evaluation attached herewith to ensure the satisfaction of the criteria set

forth in Articles 4, 5 and 6 of this Decision for the purposes of rejecting an application for license or accreditation

or rejecting the renewal thereof.

General Provisions

§Article 7

1. To take up the jobs contained in this Decision, an accreditation by the SCA must be obtained using the form

prepared for this purpose.

2. The jobs contained in this Decision are the minimum limit to meet the requirement of appointing the technical

and administrative staff in the company.

3. The SCA may conduct personal interviews with the representatives of the company applying for license and with

the relevant persons to ensure conformity with the Fit and Proper Criteria.

4. The SCA may reject the licensing or renewal of licensing of any company; or may accept or approve / accredit

or renew the accreditation of any of the relevant persons or any of the company shareholders in case of failure by

any of them to meet any of the criteria contained herein.

5. Those who are subject to the provisions of this Decision shall have the burden of proving their satisfaction and

maintenance of continuous satisfaction of the Fit and Proper Criteria.

6. Those who are subject to this Decision shall be fully liable for the correctness and accuracy of all the data

submitted to the SCA. In case it is proved that incorrect or misleading data has been submitted, the application

* Article (6/bis) has been added according to Decision No. (5) of 2019 .

and all subsequent procedures based thereon shall be deemed null and void. The SCA shall have the right to take

any legal action or other measures in this regard.

7. Persons applying for job accreditation shall:

a. Attest university certificates from the concerned authority in the State if their certificates are issued by

educational institutions abroad.

b. Pass the professional qualification tests prescribed by the SCA in addition to complying with the requirements

of the continuous professional education program on an annual basis according to the SCA requirements in this

regard.

8. The SCA may accept professional certificates, as commensurate with the nature of the job applied for, when

evaluating the university degree and practical experience in certain cases at its own discretion.

9. The SCA may exempt an employee seeking its accreditation from any requirements or conditions; and may

equalize the certificates he/she has in accordance with the internal conditions applicable in the SCA.

10. The company shall develop a written policy as part of its administrative bylaws to encourage its staff to report

(whistle-blow) to the Senior Management and the SCA any material violations that may come to their attention

while performing their functions (Whistleblowing Policy). Such policy must include the mechanism and basis to

protect the whistleblower and to ensure that he/she is not harmed, as well as the policies that should be followed

to handle the reported violation in terms of maintaining the confidentiality of the whistleblower’s name, and the

entity in charge of following up and addressing the violation.

11. The company shall provide the SCA with a list of names and details of all employees working for the company

and shall update such list immediately once any amendment or change takes place.

12. In case the company is licensed by another regulator, it would be sufficient to individually accredit one Activity

Officer for each activity licensed by the SCA.

§Article 8

I. Outsourcing means that the company authorizes a professional corporate person (outsourced contractor) from

within or outside the State (cross border) to perform on its behalf certain work or some of the administrative or

technical functions that support its core business for which it was licensed.

II. The key tasks and functions of the company may not be outsourced subject to the following exceptions:

1. Internal control work.

2. Functions of the Discipline Officer.

3. Risk Management.

4. Internal Audit.

5. Human Resources.

6. Accounting.

7. IT.

8. Work related to mutual funds, provided that the outsourcing would not result in transferring all the functions of

the Management Company/ Board of Directors to the outsourced contractors.

9. Functions or tasks approved to be outsourced by the SCA.

Outsourcing Conditions

§Article 9

Outsourcing shall be subject to following conditions:

1. Outsourcing must be made under a Service Level Agreement according to the following conditions:

a. The agreement must not violate any applicable legislation.

b. The agreement must include a clause that allows the SCA to have access to the technical systems, data or

documents related to those outsourced tasks or functions at the outsourced contractor.

c. Define the rights, duties, responsibilities and obligations of each party and establish the procedures that maintain

the confidentiality of customer information and data.

d. Inform the SCA of any subsequent change or amendment to the agreement.

2. No outsourcing agreement of the outsourced contractor with any company was terminated for reasons related

to breaching its liabilities or for violating the applicable legislation during one year prior to the date of submitting

the new outsourcing application.

3. The outsourced contractor shall obtain the SCA approval if the functions and tasks are provided for more than

one company.

4. Provide the SCA with a copy of the agreements signed on outsourcing functions or tasks of the company to an

outsourced contractor.

Obligations of the Company

§Article 10

The Company shall:

1. Prior to entering into any outsourcing agreement, prepare a study on the following effects of outsourcing:

a. The financial and operational impact; and the impact on the reputation of the company in case of failure by the

outsourced contractor.

b. The potential impact of using an outsourced contractor on the quality of services provided by the company to

its clients.

c. The potential losses of the company's clients as a result of the failure by the outsourced contractor.

d. The impact of outsourcing on the company’s ability to meet its obligations and abide by the regulations and

laws.

e. The cost of outsourcing.

f. Nature of relationship and the level of association between the company and the outsourced contractor.

g. The outsourced contractor being subject to a regulator similar to the SCA.

h. The difficulty and the time required to provide an alternative outsourced contractor when needed, or returning

the work or task to be performed by the company.

i. The level of potential risks due to the nature of relationship between the company and the outsourced contractor.

2. Refrain from outsourcing an outsourced contractor that is subject to a regulator or affiliated to a company that

prevents the SCA from obtaining data within the period set by the SCA.

3. Set plans to manage the risks associated with outsourcing more than one service or work to one outsourcer.

4. Provide the required data and information within the period set by the SCA or the market, upon request.

5. Regularly and continuously ensure that the outsourced contractor performs the tasks thereof as stated in the

agreement and in compliance with the applicable legislation.

6. Develop precautionary measures in place concerning the information security and work continuity plan.

7. Carry out the needed corrective actions once any flaw in the performance level of the outsourced contractor

arises.

8. In addition to the provisions stipulated in this Decision, in outsourcing a cross-border entity, the company shall:

a. Not outsource any of its services to any external outsourced contractor if the economic or legislative conditions

of the country where such contractor operates prevent the outsourced contractor from optimally performing its

obligations towards the company.

b. Where the outsourced contractor is subject to any regulator, inform the SCA or the market if such regulator

requests to have access to the data of the company.

9. Use due diligence when selecting the outsourced contractor to perform any functions or tasks, including

conducting full assessment and examination of the outsourced contractor to ensure its ability and readiness to

perform the services or functions assigned thereto subject to the size and type of such functions or tasks.

Continued Responsibility of the Company for its Operations and Tasks

§Article 11

1. Outsourcing will not affect the responsibilities and obligations of the company. In all cases, the company shall

be fully responsible for any failure in performing the duties, responsibilities or work, and for any failure to fulfill the

obligations or for violating the applicable legislation.

2. In all cases, the Board of Directors/ Management Board and senior management of the company shall be

responsible for:

a. The results of any outsourcing to any outsourced contractor.

b. Ensuring that any outsourcing will not adversely affect the clients' interests or expose them to risks.

c. Ensuring that any outsourcing will not adversely affect the company's commitment and ability to meet its

regulatory obligations.

d. Ensuring that any outsourcing will not impede the SCA or the market from performing their supervisory duties.

e. Ensuring that policies and procedures are in place to protect the confidentiality of customer information and to

prevent the outsourced contractor from disclosing customer data unless in compliance with the legislation.

§Article 12

Conflict of interests: means a set of circumstances which would expose a certain interest to risks that improperly

affect the validity and professionalism of the decision made thereon due to being affected by another interest.

Separation of activities: means a set of arrangements made by the company, if it provides more than one financial

activity, in terms of organizational, administrative, technical, and financial aspects, to manage the company’s

information in a manner that ensures minimizing leak or contradiction of information or data and to ensure proper

management of cases of conflict of interests by abiding by the controls of separation of such activities, including:

1. Separation in terms of the spatial aspect between the departments or sections engaged in different activities,

and securing the main entrances in each using suitable security measures to prevent unauthorized entry or access

to any data or information.

2. Separation in terms of the organizational aspect to ensure that no employee of a particular activity performs

another job in any department or section that is engaged in a different activity that is subject to the SCA control,

excluding the jobs whose work does not involve a conflict of interests with other departments or sections.

3. Development and implementation of technical precautions to ensure that the employees of a particular activity

do not have access to the technical or technological systems used to practice other activities licensed for the

company, except in cases of inquiries or producing certain reports and in a manner that such access does not give

rise to a conflict of interests or conflict of functions.

4. Development of a guide for the separation of activities to be updated whenever necessary. Such guide shall

include the policy and procedures adopted by the company to separate the activities and to manage conflicts of

interests, particularly the following:

a. Procedures to prevent any leak of inter departmental information, including full separation in terms of spatial,

organizational and technical aspects among the various activities.

b. Identification of cases of permitted communication and the information permitted to be shared among the

employees working in the licensed activities.

c. Documentation of the cases of communication among the employees of the various activities, stating the

information that was accessed by both parties, and ensuring that all employees will observe the required

documentation processes. The Compliance Officer must ensure that no employee utilizes the insider information

that was accessed during the cases of permitted communication.

d. Guidelines explaining the procedures that must be followed by an employee in case he/she has access to insider

information or data relating to the other activities practiced by the company.

e. The procedures that must be followed by the company to deal with an employee who has had access, used or

disclosed critical insider information about the other activities practiced by the company.

f. Making sure that the incentive structure or scheme adopted in the company does not allow any employee to

receive incentives unless based on his/her performance and contribution to the completion of the functions

directly assigned thereto. Also, no employees will be paid any incentives based on the performance result of

another activity.

g. Refraining from any act that may give rise to a conflict of interests.

§Article 13

The table enclosed herewith indicates the jobs accredited for the financial activities licensed by the SCA, and the

tasks, qualifications and experiences of each job and any notes related thereto. The concerned department in the

SCA shall define the mechanism of status regularization in this regard.

§Article 14

The Administrative Decision No. (34 /R.T) of 2016 concerning the Regulatory Controls for Financial Activities and

Services shall be revoked.

§Article 15

This Decision shall be communicated to all entities as required for its application, and shall come into effect from

its date of issue.

Obaid Saif Al Zaabi

Acting Chief Executive Officer

Issued in Abu Dhabi on 5/12/2017

Attachment to the Administrative Decision No. 123/R of 2017 *

First: Founder of Self investment fund:

Accredited Qualification Experience Notes

· Experience of no less than five

years in the field of financial markets · The number of one Self

Fund Founder or related fields Investment Fund founders

A natural person who University degree, may not be less than three.

assumes that functions of or a recognized

· Exempted from the SCA · The SCA may exempt him/her from founding the Self Investment professional accreditation tests the qualification condition if he/she Fund along with other certificate has a practical experience of no less founders.

than fifteen years in the field of

financial markets or related fields

Self Investment Fund Board · Experience of no less than five

University degree, · The number of one Self Member years in the field of financial markets or a recognized Investment Fund’s Board A natural person who or related fields professional of Directors’ members assumes that functions of · The SCA may exempt him/her from certificate may not be less than three. the Board of Directors of the the qualification condition if he/she

* The Attachment has been amended according to The Chairman of the Authority’s Board of Directors’

Decision No. (13/Chairman) of 2021 on the Regulations Manual of the Financial Activities and Status Regularization Mechanisms.

Self Investment Fund along has a practical experience of no less · Exempted from the SCA

with other Members. than fifteen years in the field of accreditation tests

financial markets or related fields

Second: Activities Licensed by the SCA and the Accredited Jobs required to practice them:

Licensed Activity Required Jobs Notes

1. Manager

2. Operations manager

Job Required as Regulations Manual of the Market 3. Compliance officer Financial Activities

4. Risks management

officer

1. Manager

2. Operations manager

Job Required as Regulations Manual of the Central Clearing 3. Compliance officer Financial Activities

4. Risks management

officer

1. Manager

2. Operations manager

Job Required as Regulations Manual of the Depository Centre 3. Compliance officer Financial Activities

4. Risks management

officer

1. Manager

Brokerage in Securities of

2. Broker representative Job Required as Regulations Manual of the Commodities

Financial Activities

3. Compliance officer (Trading Member )

1. Manager

2. Broker representative

Brokerage in Securities of 3. Trading manager

Job Required as Regulations Manual of the Commodities 4. Operations manager Financial Activities (Trading & Clearance Member)

5. Compliance officer

6. Risks management

officer

1. Manager

2. Broker representative

Brokerage in Securities of

3. Trading manager Commodities Job Required as Regulations Manual of the

4. Operations manager ( General Trading & Clearance Financial Activities

Member) 5. Compliance officer

6. Risks management

officer

Bases for Evaluation attached to Article (6 bis) *

Timing Violations Committed Examples of the Violation Consequence Period

* The Table has been added by Administrative Decision No. (5/Chairman) of 2019 .

First: Committing administrative violations for which final decisions were issued by the Authority or by a similar supervisory authority, inside or outside the State.

Manipulating the prices of 10 traded securities years

· Exploiting undeclared 10 insider information. years

· Trading to mislead investors as to the presence of an active market for a listed security in order to achieve private benefits.

Rejecting an application for Grave Violations · Influencing the price of a license or accreditation or security, achieving rejecting the renewal thereof. benefits, or avoiding losses.

· Providing any incorrect data, statements, or information that influence the market value of 7 years securities or the decision of investors whether or not to invest.

· Harming investors, the reputation of the market, or its members.

· Disposal of clients’ funds.

· Suspicions of Money 10 laundry. years

· Trading by an insider without disclosure or 7 years obtaining the approval of the market

· Practicing any of the activities or services which 10 subject to the Authority years without obtaining a license.

· Any other violation where the assigned penalty is over 20,000 AED for the first 5 years time the violation is committed.

· Any other violation where the assigned penalty is

7 years suspension for the first time the violation is committed.

· Any other violation where the assigned penalty is revocation of the license for the first time the violation is committed.

Any violations where the assigned penalty is revocation of the 10 accreditation for the first years time the violation is committed

Any violations where the assigned penalty is referral to prosecution for the first time the violation is committed.

· Not submitting the data or documents required by the 3 years Authority.

· Not complying with the obligation to renew the 1 year license annually.

Issuance of a conditional · Not adhering to the approval for the license or Medium gravity violations 1 year conditions of the license. accreditation application or the renewal thereof .

· Not maintaining solvency. 5 years

· Any other violations where the assigned penalty does not exceed 20,000 5 years AED for the first time the violation is committed.

· Violations related to procedural or regulatory --- Approval of the application for aspects. license or accreditation or the

· Any other violations renewal thereof (subject to Minor violations where the assigned penalty satisfying the remaining

is notice or warning for the --- requirements in accordance

first time the violation is with the decisions).

committed.

Second: Committing · Conviction in criminal 10 Rejecting the license/ criminal offences for offences related to the years accreditation, or refusing to

which final decisions or securities or commodities renew the judgments are issued by sector. license/accreditation. investigation authorities or courts , inside or outside the State.

· Conviction in criminal offences which involve violation of honor and trust.

· Conviction in misdemeanors and felonies in general.

Violations committed Examples of the violation The consequence

If the person is subject to an administrative investigation at the Delaying the decision on the Authority or at any similar application for license or Third: being subject to supervisory authority, inside or accreditation or the renewal administrative outside the state, decision on the thereof , until a final decision investigations application is delayed until a final is issued concerning such decision is issued concerning the investigations.

investigations.

Delaying the decision on the If the person is accused of application for license or committing a criminal offense, accreditation or the renewal Fourth: being subject to inside or outside the state, decision thereof , until a final decision criminal investigations on the application is delayed until a or judgement is issued final decision or judgement is issued concerning such by the competent authority.

investigations.