Consultation Paper No. 10 of 2024 - Proposed Miscellaneous Amendments to FSRA Regulations, Rules and Guidance

CONSULTATION PAPER NO. 10 OF 2024 PROPOSED MISCELLANEOUS AMENDMENTS TO FSRA REGULATIONS, RULES AND GUIDANCE 12 November 2024

2 Consultation Paper No. 10 of 2024 TABLE OF CONTENTS Introduction.......................................................................................................... 3 Why we are issuing this paper .................................................................................. 3 Who should read this paper .................................................................................... 3 How to provide comments ...................................................................................... 3 What happens next ................................................................................................ 4 Comments to be addressed to: ............................................................................... 4 Structure of this Paper........................................................................................... 5 Proposed key amendments to FSMR ...................................................................... 5 Proposed key amendments to FSRA Rulebooks ...................................................... 6 Other Miscellaneous Amendments ........................................................................ 8

3 Consultation Paper No. 10 of 2024 Why we are issuing this paper

1. The Financial Services Regulatory Authority ("FSRA") of the Abu Dhabi Global Market ("ADGM") has issued this consultation paper to invite public feedback on proposed amendments to FSRA Regulations, Rules and Guidance.
2. We would like to invite comments on the following proposed amendments: a. a small number of specific amendments to the Financial Services Markets Regulations 2015 (“FSMR”), the Conduct of Business Rulebook (“COBS”) and the Anti-Money Laundering and Sanctions Rules and Guidance (“AML”), the General Rulebook (“GEN”), the Market Rules (“MKT”), the Fees Rules (“FEES”), the Prudential - Investment, Insurance Intermediation and Banking Rules (“PRU”), and the Guidance & Policies Manual (“GPM”), as further described in this paper; and a. other miscellaneous amendments to FSMR, FSRA Rules and Guidance to add clarity or correct typographical and other inaccuracies that inadvertently appear in them.
3. Capitalised terms contained in this consultation paper have the meanings attributed to them in the FSRA’s Glossary Rulebook (“GLO”), unless otherwise defined in this paper. Who should read this paper
4. This Consultation Paper may be of interest to potential applicants for a Financial Services Permission (“FSP”) within ADGM, Authorised Persons and Recognised Bodies generally and their respective professional advisors. How to provide comments
5. All comments should be made in writing and sent to the mail address or email address specified below. If sending your comments by email, please use the Consultation Paper number in the subject line. If relevant, please identify the organisation you represent in providing your comments. The FSRA reserves the right to publish, including on its website, any comments you provide, unless you expressly request otherwise at the time of making any comments. Comments supported by reasoning and evidence will be given more weight by the FSRA. Introduction

4 Consultation Paper No. 10 of 2024 What happens next 6. The deadline for providing comments on this proposal is 10 December 2024. When we receive your comments, we will consider whether any modifications are required to the proposed amendments described in this paper. The Board and the FSRA will then proceed to enact the proposed amendments. You should not act on the proposed amendments until the relevant regulations and rules are issued and we will publish a notice on our website when that happens. Comments to be addressed to: Consultation Paper No. 10 of 2024 Abu Dhabi Global Market ADGM Square Al Maryah Island PO Box 111999 Abu Dhabi, UAE Email: fsra.consultation@adgm.com

5 Consultation Paper No. 10 of 2024

1. The proposed amendments to FSMR, the FSRA Rules and Guidance are contained in the annexes, appendices and attachments accompanying this Consultation Paper, but a small number of the proposed amendments go beyond the correction of typographical, cross-referencing or stylistic inaccuracies and are described in further detail below. FSMR, section 5A
2. Section 5A(2) of FSMR outlines a direction-making power in respect of Authorised Persons conducting a Regulated Activity in relation to Virtual Assets or Spot Commodities. It is proposed to amend section 5A to clarify that section 5A(2) is a form of “Own-Initiative Requirement Power” to which the procedure in section 42 of FSMR applies. FSMR, section 133
3. Section 133 of FSMR outlines a direction-making power in respect of Recognised Clearing Houses and Remote Clearing Houses. Currently, section 133(3) specifies certain matters that a direction issued under section 133 may not require. As it appears that this limitation was introduced inadvertently, it is proposed to amend section 133(3) to correct this. FSMR, section 246
4. Section 246 of FSMR requires the FSRA to give a warning notice to any person in relation to whom it proposes to exercise the powers listed in that section. The FSRA has observed that certain of the powers listed in section 246 are not appropriate to be referenced there as they will make the FSRA’s ability to exercise its powers and meet its statutory obligations unnecessarily onerous. Firstly, the proposed granting of an FSP under section 30(2) should not trigger a warning notice. Secondly, any exercising of the Own-Initiative Requirement Power under section 35(3) should not require a warning notice as the procedures in section 42 of FSMR apply in respect of that power.
5. Additionally, a number of powers the FSRA has in relation to the Listing Authority are currently drafted in a broad manner and would benefit from refinement to focus specifically on achieving certain regulatory goals in a timely manner, ultimately for the benefit of Listed Entities and applicants. For ease of reference, the FSRA also proposes to reorder the sections referenced in section 246 in numerical order. Scope of the proposed amendments Proposed key amendments to FSMR

6 Consultation Paper No. 10 of 2024 Question 1 Do you have any comments on the proposed amendments to FSMR described above? COBS 19.7.1 and Guidance under AML 6.1.1, 9.1.2 and 9.3.2 6. COBS 19.7.1 currently prohibits Payment Service Providers from accepting physical cash in the form of banknotes and coins from any Payment Service User. Given anti￾money laundering and associated considerations, it is proposed to amend that Rule to clarify that this prohibition includes accepting or distributing physical cash indirectly other than via appropriately regulated financial institutions. It is also proposed to insert guidance in AML as a sign-post to the prohibition in COBS 19.7.1. GEN 8.10.6 7. While GEN 8.7 requires an Authorised Person to request the withdrawal of Approved Person status where an individual ceases to be employed by the Authorised Person to perform a Controlled Function, GEN does not include a specific obligation to notify the FSRA where an individual ceases to be fit and proper to perform a Controlled Function. It is proposed to add this requirement to the notification obligations under GEN 8.10.6. MKT (with associated changes to FEES 9.1 and FSMR, section 64) 8. As currently drafted, certain Rules in MKT (e.g., MKT 4.7) suggest that a Prospectus is required only in connection with an Offer of Securities. Under section 61 of FSMR, a Prospectus is required in connection with both an Offer of Securities in ADGM and an admission to trading of those Securities on a Recognised Investment Exchange. 9. The wording of FEES 9.1 also suggests that the Prospectus filing fee applies only where a Prospectus is filed in connection with an Offer of Securities and not in connection with an admission to trading. Similarly, section 64 of FSMR refers to the use of foreign “offer” documents for the purposes of a Prospectus Offer, which implies that such documents may only be used for the purpose of making an Offer of Securities. 10. It is proposed to amend the relevant provisions in MKT by inserting appropriate references to “admission to trading”, also to amend FEES 9.1 to make clear that the filing fee also applies where a Prospectus is filed for the purpose of seeking admission to trading and to amend section 64 of FSMR to clarify that it encompasses the use of foreign documents for the purpose of seeking admission to trading. Proposed key amendments to FSRA Rulebooks

7 Consultation Paper No. 10 of 2024 MKT 3.9.1 11. MKT 3.9.1 requires disclosure of the annual financial report, interim financial report and other statements of a Listed Fund and for a Domestic Fund requires such documents to be prepared “in accordance with the requirements relating to the annual and interim reports under the Fund Rules”. This wording may create ambiguity as to whether the disclosure timelines outlined in FUNDS 16.4.2 or those outlined in MKT 10.1.8 apply. 12. It is proposed to amend MKT 3.9.1 and the related reference in Appendix 3 of MKT to clarify that the annual and interim reports must be prepared in accordance with the content requirements outlined in FUNDS but disclosed within the time periods outlined in MKT 10.1.8. PRU 13. PRU requires Authorised Persons to use external credit ratings, where available, from “ECAIs” to determine the risk weight of their exposures. The term “ECAI” covers both (i) ADGM Authorised Persons that undertake the Regulated Activity of Operating a Credit Rating Agency, and (ii) non-ADGM authorised credit rating agencies that must be recognised by the FSRA as an ECAI. However, the term “ECAI” is not used consistently in PRU, with alternative terms used including “expert credit agency”, “recognised credit rating agency” and “external credit rating agency” and “Approved Rating Agency”. Therefore, it is proposed to amend relevant references in PRU to refer solely to ECAIs and thereby eliminate the other terms used. 14. In terms of external credit ratings themselves, for the purposes of PRU 4.11 the FSRA has published a mapping table listing three ECAIs, i.e. Fitch, Moody’s and S&P, that translates external credit ratings to Credit Quality Grades which are used for the purpose of risk weighting, amongst other uses. However, in a number of places the ratings issued by ECAIs are referred to explicitly so, similarly, it is proposed to amend explicit references in PRU to those external credit ratings to instead refer to the corresponding Credit Quality Grades, where appropriate. PRU 9.3.14 – new Rule 15. While the FSRA has the power to adjust the application of the Liquidity Coverage Ratio (LCR) requirement under PRU 9.3.6, it does not have the corresponding power to adjust the application of the Net Stable Funding Ratio (NSFR) requirement. As the NSFR is a complementary liquidity standard to the LCR, it is proposed to add a new PRU 9.3.14 to grant the FSRA the power to adjust the application of the NSFR requirement.

8 Consultation Paper No. 10 of 2024 Question 2 Do you have any comments on the proposed amendments to the FSRA Rulebooks described above? 16. Beyond the key changes described above, the FSRA proposes to make other miscellaneous amendments to FSMR, the FSRA Rules and Guidance, to enhance the clarity of the FSRA’s regulatory framework and to correct typographical and other inaccuracies that inadvertently appear in them. Question 3 Do you have any comments on the other proposed miscellaneous amendments outlined in Annexes A and B, Appendices 1 to 11 and Attachments 1 and 2? 17. The draft legislative amendments to FSMR, the relevant FSRA Rules and Guidance are set out as follows. • Annex A - Proposed amendments to the Financial Services and Markets Regulations 2015; • Annex B - Proposed amendments to the Fees Rules (FEES); • Appendix 1 - Proposed amendments to the Anti-Money Laundering and Sanctions Rules and Guidance (AML); • Appendix 2 - Proposed amendments to the Captive Insurance Business Rules (CIB); • Appendix 3 - Proposed amendments to the Conduct of Business Rulebook (COBS); • Appendix 4 - Proposed amendments to the Fund Rules (FUNDS); • Appendix 5 - Proposed amendments to the General Rulebook (GEN); • Appendix 6 - Proposed amendments to the Glossary Rulebook (GLO); • Appendix 7 - Proposed amendments to the Islamic Finance Rules (IFR); • Appendix 8 - Proposed amendments to the Market Infrastructure Rulebook (MIR); Other miscellaneous amendments Annexes, appendices and attachments

9 Consultation Paper No. 10 of 2024 • Appendix 9 - Proposed amendments to the Market Rules (MKT); • Appendix 10 - Proposed amendments to the Prudential - Insurance Business Rulebook (PIN); • Appendix 11 - Proposed amendments to the Prudential - Investment, Insurance Intermediation and Banking Rules (PRU); • Attachment 1 - Proposed amendments to the Guidance & Policies Manual (GPM); and • Attachment 2 - Proposed amendments to the Guidance - Regulation of Virtual Asset Activities in ADGM.