## 3. Recommended Plan of Actions to Improve Implementation of the IOSCO Objectives and Principles of Securities Regulation

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---

### Background and context
- Assessment conducted by Jennifer Elliott, Monetary and Capital Markets Department, International Monetary Fund, in January 2007 as part of an IMF-World Bank FSAP update mission to the UAE.
- Jurisdictional and institutional context:
  - Dubai International Financial Centre (DIFC) established by Federal Decree No. 35 in 2004; 110 acre area.
  - Dubai Financial Services Authority (DFSA) established in 2004 by Dubai Law No. 9; accountable to the President of the DIFC.
  - Dubai International Financial Exchange (DIFX) began operations September 2005.
  - DFSA-registered firms: 104 firms.
  - DIFX listings: 9 equity listings (all dual listed), 4 listings of sukuk bonds.
  - Notable transaction: Nakheel Development Ltd. listed US$3.52 billion of sukuk bonds on the DIFX (December 2006).
  - Collective investment schemes legal framework introduced April 2006; currently 7 fund operators licensed by DFSA, and 7 private funds domiciled in the DIFC.

### Summary implementation grades
- Total Principles implemented: 27 (Principles 1–16, 18, 20–29).
- Broadly implemented: 2 (Principles 17, 19).
- Not assessed: Principle 30 (CPSS-IOSCO standards handled separately).

### Key findings by major theme

- Regulator (Principles 1–5)
  - DFSA is a unified, independent regulator with clear statutory mandate (Article 7 of the Dubai Law; Article 8 objectives).
  - Accountability mechanisms: annual report with audited financial statements; regulatory appeals; Financial Markets Tribunal; DIFC Court appeal routes.
  - Resources and staffing: DFSA appears well funded; budget set by Board and approved by the President; staff receive offsite and onsite training.
  - Operational features:
    - Rules published on DFSA website.
    - DFSA issues guidance and interpretations.
    - No formal MOU with Central Bank of the UAE (CBU) at time of assessment; DFSA has MOUs with ESCA, Dubai Police, Dubai Attorney General’s Department, US CFTC, UK FSA, and is signatory to IOSCO Multilateral MOU.
  - Assessment: Principles 1–5 — Fully implemented.

- Enforcement, inspection and cooperation (Principles 8–13)
  - DFSA enforcement powers: inspect, investigate, compel production of documents and testimony, administrative sanctions, stop orders, halt trading, withdraw/refuse licenses, apply to DIFC Court for injunctions/freeze/winding up, refer criminal matters to UAE authorities.
  - Records retention requirements: 6 years (firms and exchanges).
  - Inspections: risk-based program; 27 onsite reviews completed in 2006; plans for 70 onsite reviews in 2007.
  - Information sharing: empowered by Article 38 Regulatory Law; DFSA Policy Statement on Confidential Regulatory Information; evidence room for confidential information.
  - Ability to assist foreign regulators, including compelling documents and statements (subject to limits on compelled testimony for criminal use).
  - Assessment: Principles 8–13 — Fully implemented.

- Issuers and disclosure (Principles 14–16)
  - Offering and continuous disclosure regime: prospectus requirement; audited financial accounts for previous three years prepared according to IFRS or equivalent; annual reports required not more than 90 days following year end; immediate disclosure of material events.
  - DIFX listing process: Listing Authority separated from business development; DFSA may object to listings; all listed issuers become DFSA reporting entities.
  - Derivatives: none at assessment date; DIFX plans to introduce derivatives in future.
  - Islamic products (sukuk): DFSA rules require prospectus disclosure of Shari’a board certification; DFSA does not review Shari’a compliance.
  - Accounting and audit: DFSA requires IFRS or equivalent; audit in accordance with IAASB or AAOFI or other DFSA-acceptable standards; no local standard-setting body or auditor oversight body.
  - Assessment: Principles 14–16 — Fully implemented. (Comment suggests DIFX could consider stipulating audit standards in listing rules.)

- Collective Investment Schemes (Principles 17–20)
  - Collective Investment Law adopted 2006; funds categorized domestic or foreign; distribution limited to qualified investors (those with US$1 million in liquid assets).
  - Licensing and prudential requirements:
    - Fund operators: category 3 license; initial minimum capital US$500,000.
    - Custodians in the DIFC: authorized firms with minimum capital US$10 million or investment grade requirement.
    - Records retention: 6 years.
  - Disclosure and valuation:
    - Public funds: full prospectus with audited financial statements (IFRS or US GAAP), valuation methodology disclosed.
    - Private funds: short-form prospectus; fewer requirements; no specific requirement to disclose valuation methods (general obligation to disclose material information applies).
    - DFSA rules require valuation policy in fund constitution; listed securities valuation at mid-market or last-trade price; illiquid investments at fair value.
  - Ongoing monitoring: DFSA onsite inspections, review of external audit reports, licensing/registration oversight.
  - Assessment: Principle 17 — Broadly implemented; Principle 18 — Fully implemented; Principle 19 — Broadly implemented; Principle 20 — Fully implemented.
  - Comment: Given limited operational history and absence of retail funds, effectiveness in practice is difficult to judge; DFSA considering more prescriptive valuation/redemption rules if retail regime opens.

- Market intermediaries and prudential framework (Principles 21–24)
  - Licensing categories and minimum initial capital (by category):
    - Category 1: US$10 million.
    - Category 2: US$2 million.
    - Category 3: US$500,000.
    - Category 4: US$10,000.
  - Prudential regime aligns with Basel I approach; ongoing capital adequacy reporting (quarterly and annual), immediate reporting of breaches.
  - Governance and conduct: requirements for internal organization, compliance officer, client agreements, confirmations within two days, account statements at least every six months (or monthly for uncovered positions), complaint registers.
  - Failure management: DFSA can impose restrictions, seek receivers/administrators, apply to DIFC Court for winding up; DIFX default and member-failure procedures; DIFX required to hold minimum of half of estimated gross operating costs for next twelve months as financial resource.
  - Assessment: Principles 21–24 — Fully implemented.

- Secondary markets, exchanges, clearing and settlement (Principles 25–29; Principle 30 not assessed)
  - DFSA licensing and oversight of trading systems, exchanges and clearing and settlement systems; DIFX licensed as exchange, listing authority, clearing and settlement system (restricted to equity and fixed income at assessment).
  - Exchange transparency and market surveillance:
    - DIFX pre- and post-trade transparency: continuous dissemination of five best bid/ask limits and trade execution details (quantity, price, time); real-time public dissemination (price and volume, not identity).
    - Off-exchange (block) trades permitted and reported within specified periods.
  - Ongoing supervision: joint protocols, monthly senior management meetings, joint regulatory committee every two weeks, DFSA access to pre-trade and post-trade information.
  - Market misconduct and prohibitions: Articles 36–43 of Markets Law criminalize fraud, market manipulation, misleading/deceptive statements, inducements to deal on false statements, insider dealing and provision of inside information.
  - Assessment: Principles 25–29 — Fully implemented. Principle 30 — Not assessed.

### Selected exact numeric facts and operational metrics
- DFSA-registered firms: 104 firms.
- DIFX equity listings: 9 equity listings; 2 of which did original offering on DIFX.
- DIFX sukuk listings: 4 listings.
- Nakheel sukuk listing: US$3.52 billion (December 2006).
- Collective investment schemes: 7 fund operators licensed; 7 private funds domiciled in the DIFC.
- Investor qualification threshold for funds: US$1 million in liquid assets.
- Records retention requirement: 6 years (firms and exchanges).
- Onsite reviews: 27 onsite reviews completed in 2006; plans for 70 onsite reviews in 2007.
- Fund operator initial minimum capital (category 3): US$500,000.
- Custodian minimum capital in DIFC: US$10 million (or requirement to be graded investment grade).
- Intermediary minimum initial capital by category: Category 1 US$10 million; Category 2 US$2 million; Category 3 US$500,000; Category 4 US$10,000.
- Exchange minimum financial resource requirement: at least half of estimated gross operating costs for next twelve months.

### Key recommendations (Table 3: Recommended Plan of Actions)
- Principles Relating to the Regulator (P 1–5)
  - Complete Memorandum of Understanding with the Central Bank of the UAE.
  - Consider lengthening the comment period for new rules.
- Principles for Issuers (P 14–16)
  - Consider stipulating audit standards in DIFX rules.
- Principles for Collective Investment Schemes (P 17–20)
  - Consider more detailed rules for valuation and redemption should the regulatory regime be extended to retail products.

### Authorities’ response
- The DFSA considers the document to be a fair and well articulated assessment of the DFSA’s conformity with IOSCO’s Objectives and Principles of Securities Regulation and has no additional comments.

*Source: IMF assessment chapter "3. Recommended Plan of Actions to Improve Implementation of the IOSCO Objectives and Principles of Securities Regulation" (assessment conducted January 2007).*

### 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of

### 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation

### Major components
- "1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation" — page 8
- "2. Summary Implementation of the IOSCO Objectives and Principles of Securities Regulation" — page 34

*Source: _cr07365 - 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of (PDF).*

### 3. Recommended Plan of Actions to Improve Implementation of the IOSCO Objectives

### 3. Recommended Plan of Actions to Improve Implementation of the IOSCO Objectives

### Background and context
- Assessment conducted by Jennifer Elliott, Monetary and Capital Markets Department, International Monetary Fund, in January 2007 as part of an IMF-World Bank FSAP update mission to the UAE.
- Jurisdictional and institutional context:
  - Dubai International Financial Centre (DIFC) established by Federal Decree No. 35 in 2004; 110 acre area.
  - Dubai Financial Services Authority (DFSA) established in 2004 by Dubai Law No. 9; accountable to the President of the DIFC.
  - Dubai International Financial Exchange (DIFX) began operations September 2005.
  - DFSA-registered firms: 104 firms.
  - DIFX listings: 9 equity listings (all dual listed), 4 listings of sukuk bonds.
  - Notable transaction: Nakheel Development Ltd. listed US$3.52 billion of sukuk bonds on the DIFX (December 2006).
  - Collective investment schemes legal framework introduced April 2006; currently 7 fund operators licensed by DFSA, and 7 private funds domiciled in the DIFC.

### Summary implementation grades (Table 2)
- Total Principles: implemented: 27 (Principles 1–16, 18, 20–29).
- Broadly implemented: 2 (Principles 17, 19).
- Not assessed: Principle 30 (CPSS-IOSCO standards handled separately).

### Key findings by major theme

- Regulator (Principles 1–5)
  - DFSA is a unified, independent regulator with clear statutory mandate (Article 7 of the Dubai Law; Article 8 objectives).
  - Accountability mechanisms: annual report with audited financial statements; regulatory appeals; Financial Markets Tribunal; DIFC Court appeal routes.
  - Resources and staffing: DFSA appears well funded; budget set by Board and approved by the President; staff receive offsite and onsite training.
  - Operational features:
    - Rules published on DFSA website.
    - DFSA issues guidance and interpretations.
    - No formal MOU with Central Bank of the UAE (CBU) at time of assessment; DFSA has MOUs with ESCA, Dubai Police, Dubai Attorney General’s Department, US CFTC, UK FSA, and is signatory to IOSCO Multilateral MOU.
  - Assessment: Principles 1–5 — Fully implemented.

- Enforcement, inspection and cooperation (Principles 8–13)
  - DFSA enforcement powers: inspect, investigate, compel production of documents and testimony, administrative sanctions, stop orders, halt trading, withdraw/refuse licenses, apply to DIFC Court for injunctions/freeze/winding up, refer criminal matters to UAE authorities.
  - Records retention requirements: 6 years (firms and exchanges).
  - Inspections: risk-based program; 27 onsite reviews completed in 2006; plans for 70 onsite reviews in 2007.
  - Information sharing: empowered by Article 38 Regulatory Law; DFSA Policy Statement on Confidential Regulatory Information; evidence room for confidential information.
  - Ability to assist foreign regulators, including compelling documents and statements (subject to limits on compelled testimony for criminal use).
  - Assessment: Principles 8–13 — Fully implemented.

- Issuers and disclosure (Principles 14–16)
  - Offering and continuous disclosure regime: prospectus requirement; audited financial accounts for previous three years prepared according to IFRS or equivalent; annual reports required not more than 90 days following year end; immediate disclosure of material events.
  - DIFX listing process: Listing Authority separated from business development; DFSA may object to listings; all listed issuers become DFSA reporting entities.
  - Derivatives: none at assessment date; DIFX plans to introduce derivatives in future.
  - Islamic products (sukuk): DFSA rules require prospectus disclosure of Shari’a board certification; DFSA does not review Shari’a compliance.
  - Accounting and audit: DFSA requires IFRS or equivalent; audit in accordance with IAASB or AAOFI or other DFSA-acceptable standards; no local standard-setting body or auditor oversight body.
  - Assessment: Principles 14–16 — Fully implemented. (Comment suggests DIFX could consider stipulating audit standards in listing rules.)

- Collective Investment Schemes (Principles 17–20)
  - Collective Investment Law adopted 2006; funds categorized domestic or foreign; distribution limited to qualified investors (those with US$1 million in liquid assets).
  - Licensing and prudential requirements:
    - Fund operators: category 3 license; initial minimum capital US$500,000.
    - Custodians in the DIFC: authorized firms with minimum capital US$10 million or investment grade requirement.
    - Records retention: 6 years.
  - Disclosure and valuation:
    - Public funds: full prospectus with audited financial statements (IFRS or US GAAP), valuation methodology disclosed.
    - Private funds: short-form prospectus; fewer requirements; no specific requirement to disclose valuation methods (general obligation to disclose material information applies).
    - DFSA rules require valuation policy in fund constitution; listed securities valuation at mid-market or last-trade price; illiquid investments at fair value.
  - Ongoing monitoring: DFSA onsite inspections, review of external audit reports, licensing/registration oversight.
  - Assessment: Principle 17 — Broadly implemented; Principle 18 — Fully implemented; Principle 19 — Broadly implemented; Principle 20 — Fully implemented.
  - Comment: Given limited operational history and absence of retail funds, effectiveness in practice is difficult to judge; DFSA considering more prescriptive valuation/redemption rules if retail regime opens.

- Market intermediaries and prudential framework (Principles 21–24)
  - Licensing categories and minimum initial capital (by category):
    - Category 1: US$10 million.
    - Category 2: US$2 million.
    - Category 3: US$500,000.
    - Category 4: US$10,000.
  - Prudential regime aligns with Basel I approach; ongoing capital adequacy reporting (quarterly and annual), immediate reporting of breaches.
  - Governance and conduct: requirements for internal organization, compliance officer, client agreements, confirmations within two days, account statements at least every six months (or monthly for uncovered positions), complaint registers.
  - Failure management: DFSA can impose restrictions, seek receivers/administrators, apply to DIFC Court for winding up; DIFX default and member-failure procedures; DIFX required to hold minimum of half of estimated gross operating costs for next twelve months as financial resource.
  - Assessment: Principles 21–24 — Fully implemented.

- Secondary markets, exchanges, clearing and settlement (Principles 25–29, 30 not assessed)
  - DFSA licensing and oversight of trading systems, exchanges and clearing and settlement systems; DIFX licensed as exchange, listing authority, clearing and settlement system (restricted to equity and fixed income at assessment).
  - Exchange transparency and market surveillance:
    - DIFX pre- and post-trade transparency: continuous dissemination of five best bid/ask limits and trade execution details (quantity, price, time); real-time public dissemination (price and volume, not identity).
    - Off-exchange (block) trades permitted and reported within specified periods.
  - Ongoing supervision: joint protocols, monthly senior management meetings, joint regulatory committee every two weeks, DFSA access to pre-trade and post-trade information.
  - Market misconduct and prohibitions: Articles 36–43 of Markets Law criminalize fraud, market manipulation, misleading/deceptive statements, inducements to deal on false statements, insider dealing and provision of inside information.
  - Assessment: Principles 25–29 — Fully implemented. Principle 30 — Not assessed.

### Selected exact numeric facts and operational metrics (preserve source precision)
- DFSA-registered firms: 104 firms.
- DIFX equity listings: 9 equity listings; 2 of which did original offering on DIFX.
- DIFX sukuk listings: 4 listings.
- Nakheel sukuk listing: US$3.52 billion (December 2006).
- Collective investment schemes: 7 fund operators licensed; 7 private funds domiciled in the DIFC.
- Investor qualification threshold for funds: US$1 million in liquid assets.
- Records retention requirement: 6 years (firms and exchanges).
- Onsite reviews: 27 onsite reviews completed in 2006; plans for 70 onsite reviews in 2007.
- Fund operator initial minimum capital (category 3): US$500,000.
- Custodian minimum capital in DIFC: US$10 million (or requirement to be graded investment grade).
- Intermediary minimum initial capital by category: Category 1 US$10 million; Category 2 US$2 million; Category 3 US$500,000; Category 4 US$10,000.
- Exchange minimum financial resource requirement: at least half of estimated gross operating costs for next twelve months.

### Key recommendations (Table 3: Recommended Plan of Actions)
- Principles Relating to the Regulator (P 1–5)
  - Complete Memorandum of Understanding with the Central Bank of the UAE.
  - Consider lengthening the comment period for new rules.
- Principles for Issuers (P 14–16)
  - Consider stipulating audit standards in DIFX rules.
- Principles for Collective Investment Schemes (P 17–20)
  - Consider more detailed rules for valuation and redemption should the regulatory regime be extended to retail products.

### Authorities’ response
- The DFSA considers the document to be a fair and well articulated assessment of the DFSA’s conformity with IOSCO’s Objectives and Principles of Securities Regulation and has no additional comments.

*Source: IMF assessment chapter "3. Recommended Plan of Actions to Improve Implementation of the IOSCO Objectives and Principles of Securities Regulation" (assessment conducted January 2007). *

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07365.pdf_