Fitness and Propriety Regulation

CBUAE Classification: Public Fitness and Propriety Regulation

CONTENTS Subject Page Introduction 3 Objective 6 Scope 6 Article (1) Definitions 7 Article (2) Fit and Proper Conditions 15 Article (3) Powers of the Central Bank 16 Article (4) Responsibilities of the Licensee 17 Article (5) Material Risk Takers 20 Article (6) The Fit and Proper Process 20 Article (7) Fit and Proper Criteria 22 Article (8) Collective Suitability 23 Article (9) Continuous Professional Development (CPD) Requirements 23 Article (10) Record Keeping and Reporting 24 Article (11) Enforcement and Sanctions 26 Article (12) Interpretation of Regulation 26 Article (13) Publication and Application 26 Article (14) Transitional Arrangements 26

Circular No. 4/2024 Date: 25/07/2024 To: All Licensed Financial Institutions, Insurance Companies, Takaful Insurance Companies and Insurance-Related Professions Subject: Fitness and Propriety Regulation

Introduction The Central Bank is seeking to establish the framework for assessing fitness and propriety of Applicants, Authorized Individuals and Material Risk Takers and other Persons designated by the Central Bank. The Fitness and Propriety Regulation (this Regulation), and the accompanying Fitness and Propriety Standards (the Standards) set out the Central Bank’s minimum requirements for fitness and propriety to ensure that Persons who hold Designated Functions and other key positions within Licensees meet established criteria which support good governance and thereby the protection of depositors, policy holders, other customers and key stakeholders. This Regulation and accompanying Standards must be read in conjunction with the Central Bank Laws and Regulations, including the following, at a minimum:

• Central Bank Circular No. 83/2019 - Corporate Governance Regulation for Banks and accompanying Standards;
• Central Bank Circular No. 24/2022 - Corporate Governance Regulation for Insurance Companies and accompanying Standards;
• Central Bank Circular No. 3/2023 – Finance Companies Regulation;
• Central Bank Circular No. 15/2021 – Retail Payment Services and Card Schemes Regulation;
• Central Bank Circular No. 6/2020 – Stored Value Facilities Regulation;
• Central Bank Notice No. CBUAE/BSD/N/2020/2123 - Standard Re. Shari’ah Governance for Islamic Financial Institutions;
• Central Bank Notice No. CBUAE/BIS/2023/4496 Standard re Shari’ah Governance for Takaful Insurance Companies;
• Central Bank Notice No. 35/2018 - The Standards for the Regulations Regarding Licensing and Monitoring of Exchange Business;
• Central Bank of the UAE’s Board of Directors’ Resolution published in the Official Gazette issue No. (740) on 30 November 2022 - Regulation Regarding Takaful Insurance;
• Central Bank Notice No. CBUAE/BIS/2024/3829 - Insurance Brokers’ Regulation;
• Insurance Authority Board of Directors Resolution No. 6 of 2010 Concerning Surveyors and Loss Adjusters’ Regulations;
• Insurance Authority Board Resolution No. 08 of 2011 - Instructions Concerning the Regulation of Insurance Agents Business;
• Insurance Authority Board of Directors Resolution No. 9 of 2011 Concerning the Instructions for Licensing Health Insurance Third Party Administrators and Regulation and Control of their Business;
• Insurance Authority Board of Directors’ Resolution No. (27) of 2020 Concerning the Instructions for Licensing Insurance Producers;
• Insurance Authority Board of Directors Decision No. (9) of 2017 Concerning the Regulations on Licensing and Registration of Actuaries and Regulation of their Operations;
• Board of Directors' Decision No. (12) of 2018 Concerning the Regulation on Licensing and Registration of Insurance Consultants and Organization of their Operations; and
• Insurance Authority Board of Directors Decision No. (13) of 2018 Instructions Concerning Marketing Insurance Policies through Banks.

In the event of any conflicts between requirements in this Regulation and the aforementioned Regulations or any other Regulations, the requirements herein take precedence.

The Central Bank will use this Regulation and its accompanying Standards as the benchmark for its evaluation of Authorized Individuals, to ensure that their appointment facilitates the sound and prudent management of Licensees. Licensees hold primary responsibility for assuring themselves and the Central Bank, that Authorized Individuals and Material Risk Takers are fit and proper and suitable by, at a minimum, meeting the criteria established herein on the following (where applicable):

• Honesty, integrity and reputation;
• Competence and capability;
• Financial conduct;
• Independence of mind; and
• Time commitment.

This Regulation and the accompanying Standards are issued pursuant to the powers vested in the Central Bank under the Central Bank Laws and set the minimum principles of fitness and propriety, as far as common elements apply across regulated sectors. The Central Bank may issue additional Regulations in respect of ensuring the suitability of Authorized Individuals, Material Risk Takers and other Persons, as may be required within specific Licensees.

Where this Regulation, or its accompanying Standards, include a requirement to provide information or to take certain measures, or to address certain items listed, the Central Bank may impose requirements, which are additional to those provided for in the relevant Article.

Objective The objective of this Regulation is to implement a framework for ensuring that Authorized Individuals and Material Risk Takers are fit and proper, and suitable to perform their functions within a Licensee. The accompanying Standards supplement this Regulation and elaborate on the framework by setting the minimum criteria and process for assessing the fitness and propriety of Persons prior to appointment and on an ongoing basis, which is expected to ensure the safety and soundness of Licensees and overall stability of the UAE financial sector.

This Regulation and the accompanying Standards establish the functions and Persons who require Authorisation by the Central Bank prior to their appointment or reappointment to positions within a Licensee. Additionally, all functions, which are required to undergo the Fit and Proper Process, are also established.

With the implementation of this Regulation and accompanying Standards, the expectation is that Licensees must be able to assure the Central Bank, on a continuous basis, that they are in full compliance with fit and proper requirements.

Scope This Regulation and the accompanying Standards apply to all Licensed Financial Institutions, Insurance Companies, Takaful Insurance Companies and Insurance-Related Professions (collectively, Licensees). The fit and proper and suitability requirements apply to the Licensee as a whole and the individuals involved in the management and control, as well as those who exercise significant power or discharge significant responsibilities in relation to the activities carried on by the Licensee.

Licensees established in the UAE with Group relationships, including Subsidiaries, Affiliates, or international branches, must ensure that this Regulation and the accompanying Standards are adhered to on a solo and Group-wide basis. The requirements within this Regulation and the accompanying Standards shall also apply to Persons engaged by a Licensee in cases where a function is outsourced, where applicable.

Article (1) Definitions The following terms shall have the meaning assigned to them below for the purposes of this Regulation and its accompanying Standards:

1.1 Actuary: a Person licensed or authorized by the CBUAE to determine the value and price of the insurance policies, and to assess the technical provisions, accounts and all matters related thereto.

1.2 Affiliate: an entity that, directly or indirectly, controls, is controlled by, or is under common control with another entity. The term control as used herein shall mean the holding, directly or indirectly, of voting rights in another entity, or of the power to direct or cause the direction of the management of another entity.

1.3 Applicant: a nominee for appointment or reappointment to a Designated Function in a Licensee. The term ‘Applicant’ is captured by Authorized Individual, where relevant.

1.4 Authorisation: the Central Bank’s formal approval or non-objection to the appointment or reappointment of a Person to a function within a Licensee, as determined by the Central Bank.

1.5 Authorized Individual: any natural Person authorized in accordance with the provisions of the Central Bank Laws, to carry on any of the Designated Functions. In the case of Insurance Companies and Insurance-Related Professionals, the term Authorized Individual includes Senior Employees.

1.6 Authorized Manager: a natural Person appointed by a foreign Insurance Company to manage its Branch in the State.

1.7 Bank: any Juridical Person licensed in accordance with the provisions of the Central Bank Law, to primarily carry on the activity of taking deposits, and any other Licensed Financial Activities.

1.8 Board: the board of directors of the Licensee. In the case of branches of foreign Licensees, Board refers to the highest decision making body of the Licensee within the State, for example, the Senior Management committee.

1.9 Branch: a branch of the Insurance Company that carries out insurance activities in the name of the Insurance Company.

1.10 Central Bank: the Central Bank of the United Arab Emirates (CBUAE).

1.11 Central Bank Law: the Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organisation of Financial Institutions and Activities, as amended.

1.12 Central Bank Laws: the Central Bank Law and the Insurance Law.

1.13 Chief Executive Officer: the most senior executive appointed by the Board, and in the case of a Branch, this refers to the Authorized Manager.

1.14 Collective Suitability: the structure and composition of a Licensees’ Board which allows for full appreciation of the Licensees’ risk profile and business strategy to enable it to exercise effective challenge and oversight of decisions. The assessment of Collective Suitability takes into consideration, inter alia, size and structure, degree of independence and interaction, degree of diversity, and collective, relevant knowledge, skills and experience.

1.15 Compliance with Islamic Shari’ah Provisions: refers to compliance with Islamic Shari’ah in accordance with: a. The provisions stated in Section Six of Book Three of the Commercial Transactions Law, b. The provisions contained in the bylaws issued implementing Section Six of Book Three of the Commercial Transactions Law, c. The resolutions, Fatwas, regulations and standards issued or approved by the Higher Shari’ah Authority in relation to businesses and activities of the Licensee ("HSA’s Resolutions"), d. The resolutions and Fatwas issued or approved by the Internal Shari’ah Supervision Committee of the respective Licensee, in relation to businesses and activities of such Licensee ("ISSC’s Resolutions"), provided that they do not contradict the HSA’s resolutions.

1.16 Conflict of Interest: a situation of actual or perceived conflict between the duty and private interests of a Person, which could improperly influence the performance of his/her duties and responsibilities.

1.17 Continuous Professional Development (CPD): any type of training or learning undertaken by a Person which increases relevant knowledge, understanding and experiences of a subject area or role.

1.18 Control Functions: the Licensee’s functions that have a responsibility independent from management to provide objective assessment, reporting and/or assurance; this includes the risk management function, the compliance function and the internal audit function.

1.19 Designated Functions: functions of the Authorized Individual at, or for the benefit of, a Licensee of influential nature on the institution's activities.

1.20 Fit and Proper Process: the evaluation of a Licensee’s proposed and existing members of the Board and Senior Management, Material Risk Takers and other Persons, as determined by the Central Bank.

1.21 Group: a group of entities that includes an entity ("the first entity") and: a. any parent company of the first entity; b. any subsidiary of the first entity or of a parent company of the first entity; c. and any affiliate.

[Note: The provided text ends at definition 1.21. The subsequent articles (2-14) referenced in the Table of Contents are not included in the source text provided.]