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Dubai Regulator Raps Asset Manager On The Knuckles
United Investment Bank Ltd has 30 days to pay US$50,000 to the Dubai Financial Services Authority by way of a fine for providing funds with bad service by flouting the regulator's safe custody requirements. It cannot provide custody to funds again until it has fulfilled all the points in a stringent agreement that it has signed with the DFSA.
United Investment Bank Ltd has 30 days to pay US$50,000 to the Dubai Financial Services Authority by way of a fine for providing funds with bad service by flouting the regulator's safe custody requirements. It cannot provide custody to funds again until it has fulfilled all the points in a stringent agreement that it has signed with the DFSA.
The DFSA licenced UIB in March 2011 to advise on financial products and credits, arrange credit or deals in investments, manage assets and arrange custodial services. From March 2012 onwards, UIB signed agreements with six investment funds (only three of which were active) to provide custody. In December an internal audit revealed that UIB did not provide custody at all for one of the investment funds.
In June this year, UIB handed the DFSA its annual "safe custody auditor's report" under GEN rule 8.6.1(f) (from the DFSA's general rulebook). It admitted its error and also stated that it did not have any formal agreement with the fund administrator for the provision of custodial services and did not have any systems in place to ensure that a third-party agent who was involved in the provision of custody "remained suitable on an annual basis". It also admitted to not having systems and controls to enable it to comply with the safe custody provisions contained in COB (conduct-of-business) App 6.
The DFSA noted that, at all times, the fund administrator was not authorised or licenced to provide custodial services. UIB knew for nine months that the fund administrator was providing custodial services to the fund whereas the bank itself was not. The attempts of UIB's chief financial officer and senior executive officer to remedy some of the conduct were countermanded by a shadowy "external stakeholder" whose name was not revealed in the humiliating agreement that UIB has had to sign.
What the rules sayThe DFSA contends that UIB contravened GEN rule 4.2.2 - principle 2 for authorised firms to do with due skill, care and diligence, by failing to provide custody to the fund and comply with the safe custody provisions of COB App 6 in contravention of COB rule 6.13.3(1).
More gravely, the regulator believes that UIB did not deal with it in an open and co-operative manner, breaking GEN rule 4.2.10 - principle 10 - which governs relations with regulators. UIB failed to tell it that it did not provide custodial services to the fund and allowed an unlicenced agent to do so instead. It also invoked GEN 4.2.11 - principle 11 - which governs compliance with high standards of corporate governance. Its standards of management, systems and controls came in for criticism as well, under GEN rule 4.2.3 - i.e. principle 3.
The remediesThe undertaking that UIB has signed obliges it to "implement a clear responsibility matrix" for custodial services, to be verified by an outsider acceptable to the regulator; to employ licenced persons to provide custody; and to come up with a new set of systems and controls. All authorised individuals at UIB are to be re-trained. The DFSA may interfere with further instructions if it feels like it.
