Consultation Paper No. 9 of 2024 - Proposed Enhancements to the Regulatory Framework of the FSRA

CONSULTATION PAPER
NO. 9 OF 2024
PROPOSED ENHANCEMENTS
TO THE REGULATORY
FRAMEWORK OF THE FSRA
29 October 2024

Consultation Paper No. 9 of 2024
Table of Contents
Introduction 3
Why we are issuing this paper 3
Who should read this paper 3
How to provide comments 4
Deadline for comment 4
Background 5
Revisions to BCBS Principles 5
Proposals to align with the BCBS Principles 6 Corporate governance 6 Domestic systemically important banks (“D-SIBs”) 8 Additional guidance for country risk and transfer risk 8 Enhancement and clarification of regulatory expectations pertaining to stress testing 9 Additional criteria for “Connected Counterparties” and “Closely Related” Counterparties 10 Managing problem exposures 11 Prior notification requirements for major acquisitions/investments or when establishing a new subsidiary 11 Miscellaneous 12 Summary 13 Attachment and appendices 13

Consultation Paper No. 9 of 2024
Why we are issuing this paper

1. The Financial Services Regulatory Authority (the “FSRA” or “we”), the financial
   services regulator for Abu Dhabi Global Market (“ADGM”), is approaching ten years of operations and considers this an opportune moment to take stock of our regulatory framework for financial services. Our ambition is to ensure that our regulatory framework continues to be aligned with current best practices enshrined in the following standards, as issued by the international standard-setting bodies:
   a. Core Principles for effective banking supervision 1 , issued by the Basel Committee on Banking Supervision (the “BCBS Principles”); b. Objectives and Principles of Securities Regulation 2 , issued by the International Organization of Securities Commissions (the “IOSCO Principles”); and
   c. Insurance Core Principles 3
   , issued by International Association of Insurance Supervisors (the “IAIS Principles”). For the purposes of this Consultation Paper (“CP”) these will be referred to collectively as the “International Standards”.
2. As the first stage in benchmarking of our regulatory framework, we have considered
   its alignment with the BCBS Principles. The proposals in this CP seek to address those areas where enhancements to the regulatory framework will ensure further, appropriate alignment with the BCBS Principles.
3. In turn, we shall assess the regulatory framework against the other International
   Standards and, where associated enhancements are deemed to be necessary, undertake further consultation exercises, as appropriate.
4. Capitalised terms which appear in this paper have the meanings attributed to them in
   the FSRA’s Glossary Rulebook (“GLO”), unless otherwise defined herein. Who should read this paper
5. This CP proposes enhancements to regulatory expectations that should be of interest
   to all Authorised Persons, in particular Banks, Insurers and Authorised Persons that are authorised to carry on the Regulated Activities of Providing Credit or Managing a Profit Sharing Investment Account which is a PSIAu in ADGM. 1 https://www.bis.org/bcbs/publ/d573.pdf, April 2024 2 https://www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf, May 2017 3 https://www.iaisweb.org/uploads/2022/01/191115-IAIS-ICPs-and-ComFrame-adopted-in-November￾2019.pdf, November 2019 Introduction

Consultation Paper No. 9 of 2024
6. We also welcome feedback from other stakeholders, particularly Corporate Service
Providers (“CSPs”), entities based in ADGM or beyond, and regulated firms in other jurisdictions with banking experience or other advocacy groups.
7. We welcome suggestions for alternative approaches to address the regulatory
considerations raised herein and comments supported by reasoning and evidence will be given more weight. How to provide comments
8. All comments should be made in writing and sent to the physical or email address
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 when providing your comments. We reserve the right to publish any comments you provide, including on our website, unless you expressly request otherwise when submitting those comments. Deadline for comment
9. The deadline for providing comments on these proposals is 28 November 2024.
Comments to be addressed to:
Consultation Paper No. 9 of 2024
Abu Dhabi Global Market
ADGM Square
Al Maryah Island
PO Box 111999
Abu Dhabi, UAE
Email: fsra.consultation@adgm.com

Consultation Paper No. 9 of 2024

1. Since being established in October 2015, ADGM has earned acclaim for its
   progressive financial services environment which is built upon its English common law legal framework. In that respect, the FSRA was established within ADGM and empowered to design, implement and maintain a robust, progressive regulatory framework for financial services and thereby uphold the reputation of ADGM as an international financial centre.
2. The regulatory framework of the FSRA, including its regulations and rules, is
   modelled on internationally recognised standards and best practices. The regulatory framework ensures that financial services firms operating within or from ADGM do so with certainty and confidence, and that the interests of relevant stakeholders are safeguarded.
3. The FSRA has an open and forward-looking approach to the maintenance and
   development of its regulatory framework, undertaking meaningful stakeholder engagement through public consultation where additions to, or updates of, the regulatory framework are believed to be necessary. It is in this spirit that we are reviewing the regulatory framework against the International Standards.
4. The FSRA intends to take a phased approach to address areas where there is an
   opportunity to further align with the ever-evolving International Standards. This CP represents the first phase of enhancement of our regulatory framework. Further enhancements to our regulatory framework, arising from our self-assessments against the IOSCO Principles and the IAIS Principles, will be undertaken once such assessments are completed.
5. The BCBS Principles were revised in April 2024 with changes proposed to both the
   structure and the contents of those principles. The amendments were informed by several thematic topics reflecting regulatory and supervisory developments internationally, structural changes affecting the banking system, and lessons learnt from Financial Sector Assessment Programs undertaken by the International Monetary Fund and the World Bank.
6. We have reviewed our regulatory framework against the revised BCBS Principles in
   order to ensure that it remains sufficiently robust and responsive to international developments. The proposals in this CP promote continued adherence to international best practices as laid out by the BCBS Principles. Background Revisions to BCBS Principles

Consultation Paper No. 9 of 2024
Corporate governance
7. The BCBS Principles outline expectations that banks should have robust corporate
governance policies and processes covering, for example, strategic direction, organisational structure, control environment, compensation, and the roles and responsibilities of the board and senior management that are commensurate with the risk profile of the bank.
8. In particular, the BCBS’s Corporate governance principles for banks 4
recommend that a bank’s board should have, among other best practices:
a. a balance of knowledge, skills, diversity and expertise; b. a sufficient number of independent members, including a non-executive or independent chair;
c. a process for the nomination of members and the evaluation of board
performance; d. appropriate specialist committees where necessary, depending on the systemic importance and risk profile of the bank; and e. a process to oversee the design and operation of the bank’s compensation systems where necessary.
9. While our regulatory framework reflects these practices in large part, we are
proposing to enhance the regulatory framework by:
a. requiring that the Governing Body of Banks and Insurers 5 , have a majority of non-executive Directors and at least one independent Director; b. enabling the FSRA to require, having regard to size, risk profile, complexity, stage of operations and whether the bank is a Branch or Subsidiary, that the Governing Body of Banks and Insurers:
i. increase the proportion or number of non-executive Directors and
independent Directors;
4 https://www.bis.org/bcbs/publ/d328.pdf, July 2015 5 “Banks and Insurers” means for the purposes of this CP: Banks; Insurers other than Captive Insurers or Authorised ISPVs; Authorised Persons that hold a Financial Services Permission to carry on the Regulated Activity of Managing an unrestricted Profit Sharing Investment Account; and any other Authorised Person or Recognised Body where deemed appropriate by the Regulator. Proposals to align with the BCBS Principles

Consultation Paper No. 9 of 2024
ii. establish an audit, nomination, risk and/or remuneration committee, or
a committee that oversees the mandate of one or more of such committees;
iii. have a number or proportion of non-executive Directors and
independent Directors appointed to committees of the Governing Body, and specify requirements relating to the chair of such committees;
c. augmenting the existing guidance provided in Appendix 1 of the General
Rulebook (“GEN”) on best practice corporate governance, by:
i. setting out appropriate independence criteria for “independent”
Directors;
ii. suggesting an appropriate balance of non-executive and independent
directors in the membership of Governing Bodies and Governing Body committees;
iii. recommending a regular review of the effectiveness of corporate
governance arrangements; and
iv. providing additional detail on the conditions under which we might
expect specific Governing Body committees to be formed, given the nature of an Authorised Person’s or Recognised Body’s risk profile and the complexity of its operations.
10. While the BCBS’s Corporate governance principles for banks do not specifically
address branches, our benchmarking across jurisdictions suggested that there is an opportunity to enhance the guidance we have already provided in relation to bank branches operating within ADGM. Accordingly, we propose to enable the FSRA to require Banks and Insurers that are operating as a Branch to establish a committee to carry out the Governing Body’s corporate governance responsibilities in relation to its operations within ADGM, where the FSRA considers that to be appropriate.
11. In addition, we are proposing additional guidance in relation to GEN 5.3.7 setting out
that Banks and Insurers should appoint an individual other than the Senior Executive Officer as a Senior Manager to advise the Governing Body and senior management of relevant risks in accordance with our existing Rule in GEN 3.3.6(1). Question 1: Do you agree with the proposal for Banks and Insurers to have a specific proportion of non-executive Directors and one or more independent non-executive Directors on the Governing Body? Question 2: Do you agree with the FSRA having the power to require Banks and Insurers to increase the number or proportion of non-executive and independent Directors? Question 3: Do you have comments on the independence criteria that have been included for Directors and the guidance provided in relation to the recommended balance for Governing Body committees?

Consultation Paper No. 9 of 2024
Question 4: Do you have any comments on the enhancement to branch oversight of corporate governance within ADGM where the FSRA consider it appropriate? Question 5: Do you agree with the guidance on appointing an individual as a Senior Manager to advise on relevant risks? Domestic systemically important banks (“D-SIBs”)
12. The BCBS Principles expect that there should be a process to identify those banks
that are systemically important in a domestic context. Given their systemic importance, D-SIBs are expected to be subject to higher standards, where appropriate, in line with international best practices, particularly in relation to:

• additional capital buffers in order to provide higher loss absorbency;
• a higher minimum leverage ratio; and
• lower large exposure (“LE”) limits.

13. We are therefore proposing to update the Prudential – Investment, Insurance
    Intermediation and Banking Rules (“PRU”) to:
    a. enable the FSRA to designate an Authorised Person undertaking the following Regulated Activities as a D-SIB:
    i. Accepting Deposits;
    ii. Managing an unrestricted Profit Sharing Investment Account;
    b. outline the procedures to be followed for the designation of a D-SIB;
    c. enable the FSRA to impose higher capital charges in the form of an additional
    capital buffer; d. enable the FSRA to impose a higher minimum Leverage Ratio for D-SIBs above the current minimum requirement of 3%; and e. enable the FSRA to impose LE limits lower than 25% of a D-SIB’s Tier 1 Capital, where the exposure is to another D-SIB or to a subsidiary of a D-SIB, whether inside or outside the ADGM. Question 6: Do you have any comments on the proposals to allow the FSRA to designate certain Authorised Persons, undertaking the Regulated Activities stated above, as D-SIBs and to introduce more stringent prudential requirements for such D￾SIBs, as appropriate? Additional guidance for country risk and transfer risk
14. The BCBS Principles outline that banks should have adequate policies and
    processes to identify, measure, evaluate, monitor, report and control or mitigate country risk and transfer risk in their international lending and investment activities.

Consultation Paper No. 9 of 2024
15. While the current requirements within PRU require Authorised Persons in Category
1, 2, 3A or 5 to address these risks, our self-assessment and associated benchmarking across other jurisdictions indicate that we can enhance our expectations in relation to:
a. the elements that should be contained within an Authorised Person’s policy for country risk and transfer risk, including around stress testing and disclosures; b. the factors or data that an Authorised Person should take into account when setting country or regional limits; and
c. the roles and responsibilities of the Governing Body and senior management
in managing these risks.
16. We are proposing to enhance our guidance to Authorised Persons in the above
areas. We note that the FSRA would expect Authorised Persons to implement such measures in a manner that is proportionate to the nature, size and complexity of their operations and resources outside its domestic jurisdiction. Enhancement and clarification of regulatory expectations pertaining to stress testing
17. The BCBS Principles expect that banks should have forward-looking stress testing
programmes covering all material risks and that the results of such stress testing are appropriately integrated into a bank’s decision-making and risk management. Supervisors are also expected to assess the extent to which stress testing programmes:

• are designed appropriately taking into account sufficiently severe but plausible
  assumptions and risks,
• benefit from governance structures where the board and senior management
  are actively engaged, and
• are appropriately documented, maintained and updated.

18. While Appendix 3 of PRU provides guidance around appropriate stress testing and
    scenario analysis, a review of the updated BCBS Principles in conjunction with the BCBS’s Stress testing principles 6 indicates that more guidance may be appropriate.
19. In particular, we propose enhancing the existing guidance to state more explicitly
    that stress testing frameworks for Authorised Persons, among other things:
    a. are commensurate with the risk profile and systemic importance of the Authorised Person; b. are subject to appropriate governance; 6 https://www.bis.org/bcbs/publ/d450.htm, October 2018

Consultation Paper No. 9 of 2024
c. are appropriately integrated with decision-making and risk management
processes; d. capture all material and relevant risks; e. provide for sufficient data and IT capabilities to support the analysis; f. are subject to appropriate documentation, regular maintenance and relevant updates; and g. should address communication of results/analysis within the firm and to appropriate authorities within and across jurisdictions, as relevant. Question 7: Do you find the more detailed guidance of the key components of an effective stress and scenario testing framework to be useful? Are there other components that ought to be explicitly referenced? Additional criteria for “Connected Counterparties” and “Closely Related”7 Counterparties
20. The BCBS’s standards for Supervisory framework for measuring and controlling
large exposures 8
(the “BCBS LE Standard”) set out the supervisory approach where counterparties of a bank may have specific relationships and dependencies. The criteria that indicate that two or more counterparties may be connected in such a way are the following, where one or both may exist at the same time:

• a control relationship; or
• an economic interdependence.

21. PRU outlines certain criteria around “control” in its definition of Connected
    Counterparties, and more generically addresses the concept of “economic interdependence” as observed through shared financial stresses and/or cascading failures in its definition of Closely Related Counterparties. However, it lacks the specificity and granular assessment around the criteria that determines control and economic interdependence aligned with the BCBS LE Standard. Connected Counterparties and control
22. We are therefore proposing to enhance the definition of Connected Counterparty to
    include additional criteria indicating control, as outlined in the BCBS LE Standard. Counterparties that are Closely Related and economic interdependence
23. Similarly, we are proposing to enhance the definition of Closely Related by
    addressing the concept of economic interdependence between Counterparties, while outlining the criteria that may allow for this determination in line with the BCBS 7 As referred to in PRU 8 https://www.bis.org/publ/bcbs283.pdf, April 2014

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LE Standard. In line with the BCBS LE Standard, we are proposing that firms need not conduct an assessment around economic interdependence for transactions where the sum of all exposures to one individual counterparty is less than 5% of the Authorised Person’s Tier 1 capital.
24. Additionally, in line with the expectations laid out in the BCBS Principles, we are
proposing amendments to allow the FSRA to designate two or more Counterparties as Connected Counterparties or those that are Closely Related for the purposes of LE limits or, where appropriate, remove such designations. Question 8: Are the proposed criteria for “control” in relation to the designation of Counterparties as being Connected Counterparties appropriate? Question 9: Are the proposed criteria for “economic interdependence” in relation to the designation of Counterparties as being Closely Related appropriate? Managing problem exposures
25. The BCBS Principles require that supervisors establish criteria for classifying bank
exposures as “non-performing”, any reclassification from that category to “performing”, and classification as a “forborne” exposure.
26. We are therefore proposing to add criteria and guidance for the circumstances under
which an exposure would fall within these classifications in alignment with our existing requirements for credit risk assessment and classification in PRU. Alongside better alignment with the BCBS Principles, this would provide more clarity on the expected criteria for certain categories of credit classification and also provide us with a better understanding of asset quality, thereby improving the comparability of credit risk information reported/disclosed by Authorised Persons. Question 10: Do you agree with the proposed criteria for non-performing exposures, re-classification of exposures as performing and forborne exposures? Prior notification requirements for major acquisitions/investments or when establishing a new subsidiary
27. Currently, GEN 8.10.6(6) requires immediate notification relating to any proposed
restructuring, merger, acquisition, reorganisation or business expansion which could have a significant impact on the firm’s risk profile or resources. Alongside this, GEN 8.10.2(5) requires reasonable advance notice of changes to a firm’s legal structure. While the FSRA requires advance notice in these instances, it is important to note that these are solely notification requirements.
28. The BCBS Principles, however, lay out the expectations that supervisors should:
a. have the power to review major acquisitions or investments by relevant firms against prescribed criteria to ensure that corporate affiliations or structures resulting from such acquisitions do not expose the firm to undue risks or hinder effective supervision, and

Consultation Paper No. 9 of 2024 b. importantly, have the power to reject or impose conditions on such transactions, if required.
29. In order to be more closely aligned with these expectations in the BCBS Principles,
the FSRA should have the ability to prohibit or impose conditions on certain types of major acquisitions or investments, plus the establishment of a new subsidiary, where an Authorised Person, in the view of the FSRA, does not have adequate financial, managerial or organisational resources to successfully undertake and manage in future the proposed change in its business profile.
30. We therefore propose to add a Rule clarifying that Authorised Persons in Category
1, 2 and 5 will be required to give sufficient prior notification to the FSRA of any major acquisition, investment or establishment of new subsidiary that would fall into any one of the following categories:

• Establishing or acquiring a subsidiary, regardless of its type of activity, other
  than an entity which is to be used purely as a special purpose vehicle to provide finance to the Authorised Person;
• Committing to any proposal to acquire or invest, whether directly or indirectly,
  in an entity, regardless of its type of activity, where assets being acquired, whether by one acquisition or a series of acquisitions, are of a value of 10% or more of the Authorised Person’s Capital Resources; or
• Committing to any proposal to acquire, whether directly or indirectly, greater
  than or equal to 20% of the equity interest in an entity.

31. The proposed new Rule would also give the FSRA the power to reject any such
    proposal by an Authorised Persons in Category 1, 2 or 5 or impose conditions if it were permitted, in both cases where the FSRA decides that that course of action is appropriate. Question 11: Do you have any comments on the requirement for firms in Category 1, 2 and 5 to provide sufficient prior notification to the FRSA for certain types of acquisitions or investments? Question 12: Do you agree with the proposed threshold or types of transactions listed above for an acquisition or investment to be subject to the prior notification requirements and potentially have conditions applied on it or be subject to rejection by the FRSA, where deemed appropriate? Miscellaneous
32. We are also taking this opportunity to clean up two relevant definitions as their
    presence in more than one piece of legislation may currently allow for misinterpretation. The Financial Services and Markets Regulations 2015 has definitions for “Bank” and “Deposit”, alongside definitions for same in PRU and GLO, so in order to eliminate the potential for misinterpretation we propose to delete the definitions of those terms from PRU and GLO.

Consultation Paper No. 9 of 2024
33. Additionally, we are adding some further guidance into our Guidance & Policies
Manual, to clarify our policy on the use of certain terms, including that of ‘bank’ in the name of an Authorised Person. Summary
34. A summary of the changes proposed in this CP, the firms that are affected as a
consequence and the relevant areas of the FSRA’s Rulebooks and Guidance is included as Attachment 1 to this CP. The detailed, proposed legislative amendments to the relevant Rulebooks are included in Appendices 1 to 4. Attachment 1: Summary of proposed legislative changes and firms impacted
Appendix 1: Proposed amendments to PRU
Appendix 2: Proposed amendments to GEN
Appendix 3: Proposed amendments to GLO
Appendix 4: Proposed amendments to Guidance & Policies Manual (“GPM”)
Attachment and appendices

Consultation Paper No. 9 of 2024
Attachment 1: Summary of proposed legislative changes and the firms that are affected Topic Firms affected Legislative change Rulebook(s)/Guidance Enhancements to corporate governance best practice All relevant Authorised Persons Various changes, including the remit of board committees and the independence criteria for directors GEN APP 1.1 Enhancements to corporate governance requirements

• Banks
• Insurers,
  excluding
  Captive Insurers or ISPVs
• Authorised
  Persons
  Managing an unrestricted
  PSIAu
  Requirements around non-executive and independent representation on boards GEN 3.3.41A, APP
  1.1 and GLO
  Ability to require board committees GEN 3.3.41A and APP 1.1 Ability to require specific representation on board committees Board nomination and assessment practices Role of the Board in design and implementation of a remuneration system Proxy for a board for bank branches GEN 3.3.41A Requirement around minimum risk-focussed senior management appointment(s) GEN 5.3.7 Dedicated regime for D￾SIBs Banks Definitions of 'D-SIB' PRU 1.2.1 Ability and procedures for the FSRA to designate a bank as a D-SIBs PRU 1.4 Prudential implications of designation as a D-SIB • PRU 3.16.3 - Individual Capital Requirement
• PRU 3.21.3(2) -
  Leverage Ratio
• PRU 4.15.5(2) -
  Large Exposure
  Limits

Consultation Paper No. 9 of 2024
Topic Firms affected Legislative change Rulebook(s)/Guidance Enhancements to expectations for country risk and transfer risk Authorised Persons in Category 1, 2, 3A or 5 Management of country risk and transfer risk to address proportionality, stress testing, provisioning, disclosures, and governance, among other things. PRU A4.1, paras 70 to Additional guidance and enhancements to stress testing requirements All relevant Authorised Persons Design of stress testing framework aligned with BCBS Stress testing principles PRU A3.1, paras 1 to 3 IRAP, to cross reference the enhanced stress testing guidance in A3.1 PRU A11.1, para 9 ICAAP, to cross reference the enhanced stress testing guidance in A3.1 PRU A11.2, para 3 Update references to the BCBS standards for Interest rate risk in the banking book PRU 7.2.6 and 7.4.1 Enhancements to "Connected" or "Closely Related" definitions Authorised Persons in Category 1, 2, 3A or 5 Criteria for connectedness in definitions of Connected and Closely Related parties PRU 1.2.1 Ability for the FSRA to require an Authorised Person to treat other Persons as Closely-Related or as a Connected Counterparty PRU A4.11.5 and A4.11.7 Updates to classification of problem exposures Authorised Persons in Category 1, 2, 3A or 5 Included criteria for non-performing exposures, reclassification of exposures as performing, and forborne exposures PRU 4.5.4A and 4.5.7(2) Expectations for firms to manage 'significant' exposures individually PRU 4.5.6(2) Prior notification to the Regulator Authorised Persons in Category 1, 2 and 5 Ability of the FSRA to impose conditions or object to a major acquisition or investment GEN 8.10.6A Miscellaneous - inconsistent definitions and naming conventions All Authorised Persons and Applicants Definitions of 'Bank' and 'Credit institution' deleted in PRU PRU 1.2.1 Additional guidance on naming conventions GPM 2.11

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Appendix 1
Prudential – Investment, Insurance Intermediation and Banking Rules (PRU) *In this attachment underlining indicates new text and striking through indicates deleted text.

Appendix 1
1.2 Glossary
1.2.1 The following terms and abbreviations bear the following meanings for the
purpose of these Rules.
…
Bank Means a Credit Institution.
Closely Related For Large Exposures purposes, Persons are Closely Related if:
(a) the insolvency or default of one of them is likely to be associated with the insolvency or default of the others; (b) it would be prudent when assessing the financial condition or creditworthiness of one to consider that of the others; (c) there is, or is likely to be, a close relationship between the financial performance of those Persons; or (d) they are assessed to be economically interdependent. Persons are to be assessed as being economically interdependent for the purposes of paragraph (d) where one or more of the following factors are present:
(i) 50% or more of the annual receipts or expenditure of one is derived from transactions with the other; (ii) a guarantee issued by one party in favour of the other party is likely to result in the default of the provider of that guarantee, if called; (iii) significant output of one party is sold to the other party and an alternative buyer would not easily be found; (iv) there is a single source of funds to repay loans for both parties with no alternative; or (v) common reliance on the same funding provider that is hard to replace. Has the meaning given in Rule A4.11.5. Connected Counterparty For the purposes of Large Exposures, and in relation to a Person to which the Authorised Person has an Exposure, a Connected Counterparty means another Person to whom the Authorised Person has an Exposure and who fulfils one or more of the following conditions:
(a) it is Connected to the first Person;
(b) it is an Associate of the first Person;

Appendix 1
(c) the same Persons significantly influence the Ggoverning Bbody of each or senior management of both of them; or (d) one of those Persons has an Exposure to the other that was not incurred for the clear commercial advantage of both of them and which is not on arm's length terms.; or (e) one of those Persons:
(i) has influence over the appointment or dismissal of the Board or senior management of the first Person; (ii) is entitled to exercise, or controls the exercise of 50% or more of the voting rights in the first Person including through voting agreements; or (iii) has effective control over the first Person under the criteria adopted by the International Financial Reporting Standards. Credit Institution Means:
(a) an undertaking whose business is to receive Deposits or other repayable funds from the public and to grant Credits for its own account; or (b) an Electronic Money Institution. Deposit Has the meaning given in paragraph 85 of Schedule 1 of FSMR. (1) Means a sum of Money paid on terms:
(a) under which it will be repaid, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the Person making the payment and the Person receiving it; and (b) which is not referable to the provision of property (other than currency) or services or the giving of security. (2) In (1) Money is paid on terms which are referable to the provision of property or services or the giving of security if:
(a) it is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services, and is

Appendix 1
repayable only in the event that the property or services are not in fact sold, hired or otherwise provided; (b) it is paid by way of security for the performance of a contract or by way of security in respect of loss which may result from the non-performance of a contract; or (c) without prejudice to (b), it is paid by way of security for the delivery up of property, whether in a particular state of repair or otherwise. (3) A sum is not a Deposit if it is paid:
(a) by a Person in the course of carrying on a business consisting wholly or to a significant extent of lending Money; (b) by one company to another at a time when both are members of the same Group; (c) by an Authorised Person authorised under its Financial Services Permission to carry on the following Regulated Activities:
(i) Accepting Deposits;
(ii) Effecting Contracts of Insurance; or
(iii) Carrying Out Contracts of Insurance as Principal; or (d) by a Person who is a Close Relative of the Person receiving it or who is a Director, manager or Controller of that Person. (4) A sum is not a Deposit if it is received:
(a) by a lawyer acting in his professional capacity; (b) by an accountant acting in his professional capacity; (c) by an Authorised Person or a Recognised Body authorised under its Financial Services Permission to carry on any one or more of the following Regulated Activities:
(i) Dealing in Investments as Principal;
(ii) Dealing in Investments as Agent;

Appendix 1
(iii) Arranging Credit;
(iv) Arranging Deals in Investments;
(v) Managing Assets;
(vi) Operating a Collective Investment Fund; (vii) Effecting Contracts of Insurance; (viii) Carrying Out Contracts of Insurance as Principal; (ix) Insurance Intermediation; (x) Insurance Management; or (xi) Managing a Profit Sharing Investment Account, in the course of or for the purpose of any such Regulated Activity disregarding any applicable exclusions in the GEN rules; or (d) by a Person as consideration for the issue by him of a Debenture. Domestic Systemically Important Bank (D￾SIB) An Authorised Person designated by the Regulator in accordance with section 1.4 as a domestic systemically important bank. Large Exposure An Exposure aggregated across an Authorised Person's Non-Trading Book and Trading Book to a Counterparty, a group of Connected Counterparties or a group of Closely Related Counterparties that equals or exceeds 10% of the Authorised Person's Capital Resources Tier 1 Capital. …
1.4 Domestic Systemically Important Banks
Guidance

1. This section provides for the Regulator to be able to designate an Authorised
   Person as a D-SIB. A D-SIB is a bank whose impact, if it were to fail, is likely to cause significant disruption to the domestic financial system and the broader real economy. The Regulator will, in assessing if it should designate an Authorised Person as a D-SIB, take into account the factors suggested by the Basel Committee

Appendix 1
in its framework for domestic systemically important banks. Those factors include the size, interconnectedness, substitutability and the complexity of the firm.
2. In order to address the additional risks that D-SIBs pose, they may be subject to
specific regulatory and supervisory measures, including more intensive supervision and/or higher capital requirements, amongst other measures.
3. The Regulator may designate an Authorised Person as a D-SIB whether it is a
Domestic Firm or a Branch. However, the measures that apply to a D-SIB that is a Branch will be less extensive than those that apply to one that is a Domestic Firm. For example, while both may be subject to more intensive supervision, a D-SIB that is a Branch would not be subject to higher capital requirements as those in chapter 3 do not apply to a Branch as it is subject to the capital requirements of its Home State Regulator.
1.4.1 (1) The Regulator may designate an Authorised Person as a D-SIB where:
(a) it is a Domestic Firm or Branch in Category 1 or 5; and (b) the Regulator considers that the risks associated with the Authorised Person are such that, if it were to fail, it could have a significant impact on the effective working and stability of the domestic banking or financial system.
1.4.2 (1) The Regulator must publish a copy of any designation made under this
section or any amendment or cancellation of that designation.
(2) The procedures in Part 21 of FSMR apply to a decision to designate an Authorised Person as a D-SIB or to amend the designation. (3) Where the Regulator decides to designate an Authorised Person as a D-SIB or to amend the designation, the Authorised Person may refer the matter to the Appeals Panel for review. …
3.16.3 The Regulator may impose a further requirement, termed an Individual Capital
Requirement (ICR), on an Authorised Person to hold additional Capital Resources arising from Pillar 2 adjustments (see Chapter 10), including where it designates an Authorised Person as a D-SIB. Where the Authorised Person has an ICR imposed on it, then the Authorised Person must, at all times, maintain adequate Capital Resources of the type and amount as specified in Rule 10.6.1 in addition to those kept to meet the capital adequacy requirements outlined in Rule 3.2.4. …
3.18.5 Private sector credit exposures are those for which Credit RWAs have to be
calculated in accordance with Chapter 4, other than those that fall into the following asset classes:
(a) Central government and central bank.
(b) Public sector enterprises.

Appendix 1
(c) Multilateral development bank (MDB).
(d) International organisation.
(e) Bbank.
…
3.21.3 (1) An Authorised Person must hold sufficient Tier 1 Capital to maintain, at all
times, a minimum Leverage Ratio of 3% or as otherwise set by the Regulator. (2) The Regulator may set a Leverage Ratio higher than the minimum 3% if it designates an Authorised Person as a D-SIB. …
4.3.4 An Authorised Person must also consider whether it is prudent to set out specific
provisioning requirements for any country risk and transfer risks to which it is exposed. Guidance Guidance on country risk and transfer risk Exposure is set out in Section A4.1 (Credit Risk systems and controls) in App4. …
4.4.3 The Credit Risk policy must:
(a) be consistent with the approved Credit Risk strategy, considering a range of factors, including but not limited to an approved degree of risk tolerance, capital allocated to Credit Risk, business strategy and market conditions in its main credit markets; … (i) Include comprehensive policies for identifying and managing problem assets Exposures; …
4.4.8 The credit procedures manual must establish:
(a) sound, well-defined criteria for granting credit, including a thorough understanding of the borrower or Counterparty, the purpose and structure of the credit and its source of repayment; … (f) comprehensive processes for identifying problem assetsExposures, managing problem assetsExposures, monitoring their collections and for estimating the required level of provisions.

Appendix 1
…
4.5.2 An Authorised Person must implement and maintain appropriate policies,
processes, systems and controls to:
(a) administer its credit portfolios, including keeping the credit files current, getting up-to-date financial information on borrowers and other Counterparties, funds transfer, and electronic storage of important documents; (b) ensure that the valuations of Credit Risk mitigants employed by the Authorised Person are up-to-date, including periodic assessment of Credit Risk mitigants such as guarantees and Collateral; (c) review all material concentrations in its credit portfolio and report the findings of such reviews to the Governing Body; and (d) measure Credit Risk (including to measure Credit Risk of off-balance sheet products such as Derivatives in credit equivalent terms) and monitor the condition of individual credits to facilitate identification of problem creditsExposures and to determine the adequacy of provisions and reserves.
4.5.3 The Credit Risk management system and, in particular, the systems, policies and
processes aimed at classification of credits, monitoring and identification of problem creditsExposures, management of problem creditsExposures and provisioning for them must include all the on-balance sheet and off-balance sheet credit Exposures of the Authorised Person. Guidance An Authorised Person should ensure that its loan portfolio is properly classified and has an effective early-warning system for problem loans.
4.5.4 (1) An Authorised Person must establish clearly defined criteria for identifying
its problem creditsExposures and/or impaired assets which ensure that credits are classified as impaired in all cases where there is some reason to believe that all amounts due (including principal and interest) will, or may, not be collected in accordance with the contractual terms of the loan agreement. (2) For the purpose of (1), and subject to (3), an Authorised Person must categorise its credits into five categories as detailed in the following table, where credits in the substandard, doubtful and loss categories must be considered as problem creditsExposures:
Category Criteria
Standard Includes creditsExposures with no element of uncertainty about timely repayment of the outstanding amounts, including principal and interest. CreditsExposures are currently in regular payment status with prompt payments.

Appendix 1
Special mention Includes creditsExposures with deteriorating or potentially deteriorating credit quality which, may adversely affect the borrower's ability to make scheduled payments on time. The creditsExposures in this category warrant close attention by the Authorised Person. Substandard Includes creditsExposures which exhibit definitive deterioration in credit quality and impaired debt servicing capacity of the borrower. Doubtful Includes creditsExposures which show strong credit quality deterioration, worse than those in substandard category, to the extent that the prospect of full recovery of all the outstanding amounts from the credit is questionable and consequently the probability of a credit loss is high, though the exact amount of loss cannot be determined yet. Loss Includes creditsExposures which are assessed as uncollectable and creditsExposures with very low potential for recoverability of amounts due. … Guidance

1. With respect to the ratings above, Authorised Persons should consider the following
   Exposures as being classified:
   (i) special mention;
   (ii) substandard;
   (iii) doubtful; and
   (iv) loss where the loans are contractually in arrears for a minimum number of days of 30, of more than 60, 90 –, 120 and 120 – 180 days respectively. Authorised Persons should also consider the treatments as set out in Rule 4.5.7 (Evergreening).
2. CreditsExposures exhibiting the following characteristics should be included in the
   special mention category.:
   …
3. CreditsExposures exhibiting the following characteristics should be included in the
   substandard category.:
   a. the inability of the borrower to meet contractual repayment terms of the Credit Facility;

Appendix 1
b. unfavourable economic and market conditions or operating problems that would affect the profitability and cash flow generation of the borrower;
c. the weak financial condition or the inability of the borrower to generate sufficient
cash flow to service the payments; d. difficulties experienced by the borrower in servicing its other debt obligations; or e. a breach of any financial covenants by the borrower. 4.5.4A (1) Exposures falling into the following categories must be considered as non￾performing:
(a) the Authorised Person considers that the obligor is unlikely to pay its credit obligations to the Authorised Person in full, without recourse by the Authorised Person to actions such as realisation of collateral, even when it is not past due or has been past due for less than 90 days; (b) the obligor is past due 90 days on any material credit obligation; or (c) Exposures that are ‘impaired’ according to the applicable accounting framework. Guidance

1. Indications of unlikeliness to pay for the purposes of 4.5.4A(1) may include, but are not
   limited to:
   a. The Authorised Person puts the credit obligation that gives rise to the Exposure on non-accrued status. b. The Authorised Person makes a charge-off or account-specific provision resulting from a significant perceived decline in credit quality subsequent to the Authorised Person taking on the Exposure.
   c. The Authorised Person sells the credit obligation that gives rise to the Exposure
   at a material credit-related economic loss. d. The Authorised Person consents to a distressed restructuring of the credit obligation that gives rise to the Exposure where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or, where relevant, fees. e. The Authorised Person has filed for the obligor’s bankruptcy or a similar order in respect of the obligor’s credit obligation to the Authorised Person’s group. f. The obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation that gives rise to the Exposure to the Authorised Person’s group.
2. Non-performing Exposures should always be categorised for the whole Exposure,
   including when non-performance relates to only a part of the Exposure, for instance, unpaid interest. For off-balance sheet Exposures, the whole Exposure is the entire nominal amount.

Appendix 1
3. The identification of an Exposure as non-performing is not intended to affect its
categorisation as impaired for accounting purposes.
4. An Exposure for the purposes of 4.5.4A ceases to be non-performing and may be re￾categorised as performing when all of the following criteria are simultaneously met:
a. the Counterparty does not have any material Exposure more than 90 days past due; b. repayments have been made when due over a continuous repayment period of at least 12 months;
c. the Counterparty’s situation has improved so that the full repayment of the
Exposure is likely, according to the original or, when applicable, modified conditions; and d. the Exposure is not “impaired” according to the applicable accounting framework.
5. An Exposure may not be re-categorised as performing in the following situations:
a. a partial write-off of an existing non-performing exposure, including where an Authorised Person writes off the part of a non-performing exposure that it deems to be uncollectible; b. the repossession of collateral on a non-performing exposure, until the collateral is actually disposed of and the Authorised Person realises the proceeds (when the exposure is kept on-balance sheet, it is deemed to be non-performing); or
c. an extension or granting of forbearance measures to an Exposure that has
already been identified as non-performing.
4.5.5 An Authorised Person must have detailed policies, processes and resources for
managing problem creditsExposures which address the following:
(a) monitoring of credits such Exposures and early identification of credit quality deterioration; (b) review of classification of problem creditsExposures; and (c) ongoing oversight of problem creditsExposures, and for collecting on past due obligations.
4.5.6 (1) An Authorised Person must ensure that each and every creditExposure which
qualifies as a Large Exposure and is classified as an impaired creditasset or non-performing Exposure is managed individually. This includes valuation, classification and provisioning for such creditsExposures on an individual item basis. (2) In addition, Authorised Persons must consider whether other significant Exposures, which may not necessarily qualify as a Large Exposure, should also be managed on an individual basis. Authorised Persons are responsible for documenting the criteria used to identify significant Exposures that are to

Appendix 1
be managed individually and for defining thresholds relevant to their financial or operational capacity to manage or absorb such risk.
4.5.7 (1) Any Evergreening exercise involving refinancing of past due credits or
granting forbearance measures to Exposures in arrears must not result in their being classified as a higher into a category associated with better performance. In particular, impaired credits or non-performing exposures cannot be refinanced or granted forbearance with the aim of classifying them asin the standard or special mention creditscategories. (2) Forbearance occurs when:
(a) a Counterparty is experiencing financial difficulty in meeting its financial commitments; and (b) the Authorised Person grants a concession that it would not otherwise consider, whether or not the concession is at the discretion of the Authorised Person and/or the Counterparty. Guidance For the purposes of Rule 4.5.4A and 4.5.7(2), an Authorised Person should consider the BCBS Guidelines on the Prudential treatment of problem assets – definitions of non-performing exposures and forbearance. These guidelines provide examples of possible indicators of financial difficulty with respect to forbearance, guidance on what constitutes a concession, criteria for exit from a forborne exposure category and guidance on the interaction of forbearance with non-performing exposures.
4.5.8 An Authorised Person's provisioning policy must specify the following minimum
provisioning requirements:
(a) for substandard assets – 20% of the unsecured portion of the credit; (b) for doubtful assets – 50% of the unsecured portion of the credit; and (c) for loss assets – 100% of the unsecured portion of the credit. Guidance The above provisioning requirements are the minimum level of provisions that the relevant Authorised Person must hold.
4.5.9 An Authorised Person must, on a periodic basis, at a minimum monthly frequency,
review its problem creditsExposures (at an individual level or at a portfolio level for credits with homogeneous characteristics) and review the asset classification, provisioning and write-offs for each of those problem creditsExposures. …
4.10.1 An Authorised Person must categorise any CR Exposure that is not past due for
more than 90 days into one of the following asset classes:
(a) cash items, which consist of:

Appendix 1
…
(e) the international organisation asset class, which consists of any CR Exposure to a group of specified organisations; (f)(e) bank asset class, which consists of any CR Exposure to a banking institution; (g)(f) corporate asset class, which consists of any CR Exposure to any corporation, Partnership, sole proprietorship or Trustee in respect of a trust, other than Exposures categorised in sub-paragraphs (a) to (ef), (gh) and (hi); (h)(g) regulatory retail asset class, which consists of any CR Exposure meeting all of the following conditions:
…
(i)(h) residential mortgage asset class, which consists of any CR Exposure meeting all of the following conditions:
…
(j)(i) the commercial real estate asset class, which consists of any CR Exposure meeting all of the following conditions:
…
(k)(j) other Exposures asset class, which consists of any CR Exposure which does not fall within any of the categories in sub-paragraphs (a) to (ij). …
4.12.7 Subject to Rules 4.12.8 and 4.12.9, an Authorised Person must risk-weight any CR
Exposure in the MDB asset class in accordance with the following table:
…
International organisation asset class
4.12.9 An Authorised Person must apply a 0% risk weight to any CR Exposure to the Bank
for International Settlements, the International Monetary Fund, the European Central Bank or the European Commission. …
4.13.9 (1) An Authorised Person may recognise the effects of CRM of a guarantee only
if it is provided by any of the following entities:
(a) central governments or central banks;
(b) the MDBs referred to in Rule 4.12.8;
(c) the Iinternational Oorganisations referred to in Rule 4.12.9;

Appendix 1
(d) PSEs;
…
4.13.11 (1) An Authorised Person may recognise the effects of CRM of a Credit Derivative
only if it is provided by any of the following entities:
(a) central governments or central banks;
(b) the MDBs referred to in Rules 4.12.7 to 4.12.9 4.12.8; (c) the Iinternational Oorganisations referred to in Rule 4.12.9; …
4.15.5 (1) Subject to IFR Rule 5.4.15, an Authorised Person must not incur any Large
Exposures in its Non-Trading Book and, subject to Rule 4.15.6, Trading Book after taking into account the effect of any eligible CRM, that exceeds 25% of its Tier 1, except as otherwise provided in (2). (2) An Authorised Person which is a D-SIB must, if required in writing by the Regulator, apply a Large Exposure limit lower than 25% of its Tier 1 Capital where the Large Exposure is to another D-SIB, or to a subsidiary of a D-SIB, whether inside or outside ADGM. …
7.2.6 (1) Subject to (2), the minimum frequency of the evaluation referred to in
Rule 7.2.1 is once each year.
(2) The minimum frequency of an evaluation of the effect of a sudden and unexpected parallel change in interest rates as referred to in Rule 7.2.2 is once each quarter. Guidance For the purposes of Rule 7.2.6, an Authorised Person should consider the standards for stress testing recommended in the paper published by the BCBS – Principles for management and supervision of interestStandards – Interest rate risk in the banking book –July 2004(April 2016). In particular, an Authorised Person should include the technical specifications of a standardised interest rate shock detailed in Annex 32 of that paper as part of its systems for measurement of interest rate risk in the Non-Trading Book. … Non-Trading Book interest rate risk policy
7.4.1 (1) An Authorised Person must implement and maintain a policy which enables
it to identify, assess, control and monitor its Non-Trading Book interest rate risk. …

Appendix 1
Guidance
1. The Regulator expects that an Authorised Person's strategy towards
Non-Trading Book interest rate risk will set out the approach that the Authorised Person will take towards management of the risk, including various quantitative and qualitative targets. It should be communicated to all relevant functions and staff within the organisation and be set out in the Authorised Person's Non-Trading Book interest rate risk policy. …
5. An Authorised Person should consider the standards for stress testing
recommended in the paper published in July 2004 by the BCBS – Principles for management and supervision of interestStandards – Interest rate risk in the banking book (April 2016) – in developing the stress testing scenarios. In particular, an Authorised Person should include the technical specifications of a standardised interest rate shock detailed in Annex 32 of that paper. … APP3 CAPITAL AND LEVERAGE A3.1 Stress and scenario testing Guidance
1. Stress and scenario testing is an integral part of an Authorised Person’s risk
management framework. Stress and scenario testing seek to anticipate possible losses or risks that might occur or become manifest. In applying them stress testing and scenario analysis, an Authorised Person needs toshould:
a. design its stress testing framework in a manner that is commensurate with its risk profile and systemic importance; b. clearly articulate its intended objectives;
c. design an effective governance structure around stress and scenario
testing; d. appropriately integrate the results of such testing in its decision-making, risk management processes including contingency arrangements, capital management and business decision-making; e. capture all material and relevant risks including, but not limited to, credit risk, market risk, operational risk, liquidity risk, country risk and transfer risk, concentration risk, climate risk, and apply stresses that are sufficiently severe but plausible; f. dedicate appropriate level of resources to meet the objectives of the stress testing framework; g. ensure availability of sufficiently accurate and granular data as well as robust IT systems to support the analysis;

Appendix 1
h. appropriately document and regularly maintain and update its stress testing framework;
i. ensure that models and methodologies applied in the testing are fit for
purpose; j. subject the stress testing models, results and framework to regular challenge and review; and k. communicate stress testing practices and findings internally within the firm as well as with appropriate authorities within and across jurisdictions, as relevant. An Authorised Person should also consider employing the practices contained in the BCBS Stress testing principles (October 2018).
2. decide how far forward to forecast and may want In undertaking stress and
scenario testing, an Authorised Person should take a forward-looking view and decide what time horizons are appropriate and may wish to consider the following factors:
a. how quickly it would be able to identify events or changes in circumstances that might lead to a loss occurring or risk crystallising; and b. after thean event or set of circumstances has been identified, how quickly and effectively the Authorised Person could act to prevent or mitigate any resulting loss occurring or risk crystallising and to reduce its Exposure to any further adverse event or change in circumstance.
2. For example, the time horizon over which stress and scenario testing would
need to be carried out for the Market Risk arising from the holding of Investments would depend upon:
a. the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the Investment to be more readily and quickly identified; and b. the extent to which the market in those assets is liquid (and would remain liquid in the changed circumstances contemplated in the stress or scenario test) which would allow the Authorised Person, if needed, to sell its holding so as to prevent or reduce its Exposure to future price fluctuations.
3. Authorised Persons should focus on those scenarios and combinations of
scenarios that are considered reasonably likely to occursevere, but plausible. For this purpose, other risks and losses include business risk, i.e. the potential impact of changes in business plans, future activities, and the business or economic environment. …

Appendix 1
Problem Exposures
47. An Authorised Person should have processes for the timely identification
and management of problem Exposures. These processes should be described in the Credit Risk policy. …
55. Requirements Minimum requirements relating to provisioning against loss
on problem Exposures are covered in Chapter 4.
…
Country risk and transfer risk Exposure
70. Chapter 4 does not provide limits on the size of an Authorised Person's
Exposure to a particular country or region. However, an Authorised Person which has Large Exposures in a country or region should include in its Credit Risk policy:
70. Country risk is the risk of exposure to loss caused by events in a foreign
country. Country risk includes, among others:
a. political risks i.e., potential of war, civil riot and other politically￾motivated events; and b. sovereign risk i.e., the possibility that a sovereign debtor cannot or is not willing to meet its financial obligations. County risk covers all forms of lending, trading or investment activity involving individual, corporates, banks or governments.
71. Transfer risk is the risk of inability of a debtor in a given country to meet
their financial obligations due to lack of availability of the currency in which the obligation is denominated regardless of the debtor’s particular financial condition. The inability to convert local currency into another nation’s currency could arise due to regulatory, exchange or other restrictions.
72. An Authorised Person must develop and document its risk management
processes for its operations and resources deployed outside the country. An Authorised Person’s country risk management framework should include appropriate policies and procedures to identify, measure, evaluate, monitor, report on and mitigate country risk. Such policies and procedures should be proportionate to the nature, size and complexity of an Authorised Persons’ operations and resources outside the country.
73. An Authorised Person’s country risk or transfer risk policy should include,
among other things:
a. the methodology of country classification, exposure limits and stress testing, among other aspects, that are proportionate to the degree of size and complexity of country risk and transfer risk arising from its Exposures;

Appendix 1
ab. identification of the geographical areas in which the Authorised Person does or intends to do business; bc. its definition of Credit Risk Exposure, procedures to identify country risk and transfer risks (such as exchange restrictions) associated with doing business in each country or region; cd. how to measure its total Exposure in each country or region and across several countries or regions; de. the types of business the Authorised Person intends to undertake in each country or region; ef. limits on Exposures to an individual country or region which the Authorised Person deals with, and sub-limits for different types of business if appropriate; fg. the procedure for setting and reviewing country or regional limits; and gh. the process by which the Authorised Person's actual country or regional Exposures will be monitored against limits and the procedure to be followed if the limits are breached.;
i. the provisioning policy in relation to country risk and transfer risk,
and detailed description of the methodology used for calculation of any such provisions; j. the methodology for conducting stress testing for country risk and transfer risk should include, among other considerations, elements such as the deterioration of macroeconomic conditions locally and globally, contagion effects between countries, liquidity events, impacts on funding sources etc.; k. policies around reporting in their disclosures, including its financial statements or annual reports, such information that will allow users to evaluate its country risk and transfer risk management framework, the amount of provisions for country risk and transfer risk and its overall country risk profile related to its operations, assets, liabilities and contingencies that are maintained outside of ADGM and the UAE; and
l. documenting the roles and responsibilities of the different functions
of the Authorised Person involved in managing country risk and transfer risk.
7174. When setting country or regional limits, an Authorised Person should
consider:
a. the economic and political macroeconomic circumstances prevailing in the country or region;, including its:

Appendix 1
(i) external financial condition i.e., its capacity to fulfil its financial commitments. This will include consideration of indicators such as total debt, foreign debt, maturity profile of debt, debt service as a percentage of its gross domestic product, exports, international reserves, amongst other indicators; (ii) sources of and access to funding whether through voluntary markets, bilaterally or through multilateral organisations, including any sovereign or other guarantees; (iii) macroeconomic conditions, including consideration of indicators such as a country’s gross domestic product and its growth, inflation rate, tax conditions, investment and savings trends, balance of payments, restrictions on capital flows, and the condition of its financial sector, amongst other indicators; and (iv) the credit ratings of the country; b. the political, social and institutional conditions prevailing in the country, or the wider region if relevant, that could jeopardise its stability; bc. the transfer risks associated with any particular country or region; cd. the type and maturity of business undertaken by the Authorised Person in a particular country or region; and de. the Authorised Person's existing concentration of country or regional risk;.
75. The Senior Management of an Authorised Person, including its risk
management and/or compliance functions, is responsible for the development and implementation of its country risk and transfer risk management policies and procedures, and providing the results of such efforts to its Governing Body with appropriate details and frequency. The Governing Body of the Authorised person must ensure the adequacy and proportionality of the country risk and transfer risk policy and its implementation, including reviewing the exposure limits set therein and the methodology and/or results of stress testing etc. Independent audit functions within the Authorised Person must have unrestricted access to relevant resources and the information used to assess and implement country risk and transfer risk management policies and procedures. e. the source of funding for the country or regional Exposure; and f. sovereign or other guarantees offered. Provisioning
7276. Depending upon the nature of the Authorised Person and its business, the
Authorised Person's provisioning policy should set out:

Appendix 1
a. who has responsibility for reviewing the provisioning policy and approving any changes; … g. who has responsibility for monitoring its asset portfolio on a regular basis in order to identify problem or potential problem assetsExposures and the factors it takes into account in identifying them; …
7377. Provisions may be general (against the whole of a given portfolio) or
specific (against particular Exposures identified as bad or doubtful), or both. The Regulator expects contingent liabilities and anticipated losses to be recognised in accordance with the applicable accounting standards.
7478. Appropriate systems and controls for provisions vary with the nature, scale
and complexity of the credit granted. An Authorised Person for which the extension of credit is a substantial part of its business is expected to have greater regard to developing, implementing and documenting a provisioning policy than an Authorised Person for which Credit Risk is incidental to the operation of its business.
7579. The Regulator recognises that the frequency with which an Authorised
Person reviews its provisioning policy once it has been established will vary from firm to firm. However, the Regulator expects an Authorised Person to review its policy to ensure it remains appropriate for the business it undertakes and the economic environment in which it operates. The provisioning policy should be reviewed at least annually by the Governing Body. … Group of Closely Related Counterparties A4.11.5 (1) For Large Exposures purposes, Persons are Closely Related if:
(a) the insolvency or default of one of them is likely to be associated with the insolvency or default of the others; (b) it would be prudent when assessing the financial condition or creditworthiness of one to consider that of the others; or (c) there is, or is likely to be, a close relationship between the financial performance of those Persons. A4.11.5 (1) An Authorised Person need not assess whether Persons are economically independent for a transaction where the sum of all Exposures to one individual Counterparty is less than 5% of the Authorised Person’s Tier 1. (2) The Regulator may, at its discretion, require an Authorised Person to treat two or more Persons as Closely Related to each other and to aggregate Exposures to such Persons accordingly.

Appendix 1
(23) Persons who are Closely Related to each other are also Connected with each other. (4) The requirement to aggregate Exposures where Persons are Closely Related does not apply where an Authorised Person can demonstrate to the Regulator that it is unlikely that Persons who are Closely Related will default at the same time and the Regulator has, by notice in writing, disapplied the requirement. A4.11.6 (1) A single group of Closely Related Counterparties means, in relation to an Authorised Person, all the Persons to which the Authorised Person has an Exposure and which are Closely Related to each other. (2) An Authorised Person must treat two or more Persons as falling within a group of Closely Related Counterparties if the Authorised Person has Exposures to them all and any loss to the Authorised Person on any of the Exposures to one is likely to be associated with a loss to the Authorised Person with respect to at least one Exposure to each of the others. Guidance Two or more Counterparties between whom there is no relationship of control as described in Rules A4.11.5 and A4.11.6 will be regarded as constituting a single risk if they are so interconnected that, if one of them were to experience financial problems, in particular funding or repayment difficulties, the other or all of the others would also be likely to encounter funding or repayment difficulties. Connected Counterparties A4.11.7 For Large Exposures purposes, and in relation to a Person, a Connected Counterparty means another Person to whom the first Person has an Exposure and who fulfils one of the following conditions:
(a) it is Connected to the first Person;
(b) it is an Associate of the first Person; (c) the same Persons significantly influence the Governing Body of each of them; or (d) one of those Persons has an Exposure to the other that was not incurred for the clear commercial advantage of both of them and which is not on arm's length terms. A4.11.7 (1) The Regulator may, at its discretion, require an Authorised Person to treat a Person as a Connected Counterparty of another Person and to aggregate Exposures to such Persons accordingly. (2) A Person is not considered to be a Connected Counterparty, where an Authorised Person can satisfy the Regulator that effective governance and controls are in place to mitigate risks resulting from effective control of one Person by the other and the Regulator has, by notice in writing, specified that they are not to be so considered.

Appendix 1
…
A10.2.18 The following table specifies, for each of the various categories and types of contractual receivables, the rates at which they are expected to flow in for the purpose of the calculation of the LCR. Cash Inflows Item Factor Maturing secured lending (including reverse repos and Securities borrowing), backed by the following as Collateral:

• Level 1 HQLA 0%
• Level 2A HQLA 15%
• Level 2B HQLA
  o Eligible RMBS 25% o Other assets 50%
• Margin lending backed by all other Collateral 50%
• All other assets 100%
• Credit or liquidity facilities provided to the reporting Bank
  Authorised Person 0%
• Operational Deposits held at other Financial Institutions
  (including Deposits held at centralised institution of network of co-operative banks) 0% Other inflows by Counterparty:
• Amounts receivable from retail Counterparties 50%
• Amounts receivable from non-financial wholesale
  Counterparties, from transactions other than those listed in the above inflow categories 50%
• Amounts receivable from Financial Institutions and
  central banks, from transactions other than those listed in the above inflow categories 100%
• Net Derivative receivables 100%
• Other contractual cash inflows 100%
  …
  Purpose of the IRAP
  …

8. The IRAP should:

Appendix 1
a. identify and outline all related parties of the Authorised Person, and list the types of transactions that occur between those related parties and the firm; b. identify the most significant risks to which the firm is exposed, which should, at a minimum, include the risks identified in Guidance note 911; …
9. The IRAP should, in addition to the aforementioned factors:
a. estimate, with the aid of historical data, where available, the range and distribution of possible losses which might arise from each of those risks and consider using stress tests to provide risk estimates (see guidance under App3 in relation to the design of effective stress testing frameworks); … Guidance on risks to be covered as part of the IRAP
11. An Authorised Person should consider the following risks, where relevant, in
its IRAP and all others that it believes to be material:
a. Credit Risk, including Large Exposures and concentration risks; …
12. This Guidance is merely an indicative list of risk categories types, which does
not preclude an Authorised Person from assessing other risks that it considers significant (for example, securitisation risks and residual risks). Likewise, certain categories of risks might not be relevant to all Authorised Persons completing the IRAP. In this case, the IRAP should clearly indicate why the risk is considered minimal or not relevant. The IRAP should also consider all risks arising from any non-regulated activities of the Authorised Person, if they are seen as material to the risk profile of the firm … A11.2 ICAAP … Purpose and process of the ICAAP …
3. When assessing its capital needs, an Authorised Person should take into
account the impact of economic cycles, and sensitivity to other external risks and factors. For larger or more complex institutions, this may mean developing an appropriate stress testing and scenario testing framework (see guidance under App3 in relation to the design of effective stress testing

Appendix 1
frameworks). The results of such stress and scenario testing needs to be communicated to the Regulator as part of the ICAAP submission.

---

Appendix 2
GENERAL RULEBOOK (GEN)
*In this attachment underlining indicates new text and striking through indicates deleted text.

Appendix 2
…
3.3.41A (1) This Rule applies to:
(a) Banks;
(b) Insurers other than Captive Insurers or Authorised ISPVs; (c) Authorised Persons that hold a Financial Services Permission to carry on the Regulated Activity of Managing a Profit Sharing Investment Account which is a PSIAu; and (d) other Authorised Persons or Recognised Bodies who by written notice are deemed subject to this Rule by the Regulator. (2) A majority of the Governing Body must be Non-Executive Directors, and at least one of those Non-Executive Directors must be an Independent Non-Executive Director. (3) The chair of the Governing Body must be a Non-Executive Director or an Independent Non-Executive Director. (4) The Regulator may require that the Governing Body increase the proportion or number of Non-Executive Directors and Independent Non-Executive Directors. (5) The Regulator may require the Governing Body to establish one or more of:
(a) an audit committee;
(b) a risk committee;
(c) a nomination committee;
(d) a remuneration committee, or a committee that oversees the mandate of one or more of such committees. (6) The Regulator may require that any committee of the Governing Body have:
(a) a certain number or proportion of Non-Executive Directors and Independent Non-Executive Directors; (b) a chair that is a Non-Executive Director or an Independent Non-Executive Director; and (c) a chair that is not the chair of the Governing Body or any other committee of the Governing Body. (7) The Regulator may require an Authorised Person that is subject to this Rule and operating as a Branch to establish a committee to implement corporate governance responsibilities in relation to the Branch’s operations in the ADGM.

Appendix 2
Guidance
Scope of corporate governance
1. Corporate governance is framework of systems, policies, procedures and controls
through which an entity:
a. promotes the sound and prudent management of its business; b. protects the interests of its Customers and stakeholders; and
c. places clear responsibility for achieving compliance with Rule 3.3.41(2)(a) and (3)
on the Governing Body and its members and the senior management of the Authorised Person. … Proportionate application to Authorised Persons depending on the nature of their business
5. One of the key considerations that underpins how the corporate governance
requirements set out in Rule 3.3.41 and Rule 3.3.41A apply to an Authorised Person is the nature, scale and complexity of the Authorised Person's business, and its organisational structure. When deciding whether to exercise its powers under Rule 3.3.41A, the Regulator may have regard to an Authorised Person’s systemic importance, size, risk profile, complexity, stage of operations and whether the Authorised Person is a Domestic Firm or a Branch. …
7. For example, an Authorised Person which is a small scale operation with a tightly held
ownership structure may not have be able to constitute a Governing Body which comprises members who are fully independent of the Authorised Person's business and from each other, nor be sufficiently large to be able to form numerous committees of the Governing Body to undertake various functions such as nomination and Remuneration. Similarly, it may not be necessary for a Bank or Insurer to have an Independent Non￾Executive Director appointed to its Governing Body where it is a Subsidiary or at an early stage of its operations. If that is the case, the Authorised Person should apply for a waiver or modification of the relevant requirements in Rule 3.3.41A, providing appropriate justification.
8. In such cases, whilst strict adherence to such aspects of best practice would not be
required, overall measures as appropriate to achieve the sound and prudent management of the business would be needed. For example, an Authorised Person with no regulatory track record would be expected to have additional corporate governance controls in place to ensure the sound and prudent management of its business, such as the appointment of an independent Director (who has relevant regulatory experience) to its Governing Body. Application to Branches and Groups
89. As part of the flexible and proportionate application of corporate governance standards
to Authorised Persons, whether an Authorised Person is a Branch or a Subsidiary within a Group is also taken into account. An Authorised Person which is a member of a Group may, instead of developing its own corporate governance policies, adopt Group-wide

Appendix 2
corporate governance standards. However, the Governing Body of the Authorised Person should consider whether those standards are appropriate for the Authorised Person, and to the extent possible, make any changes as necessary.
910. In the case of a Branch, corporate governance practices adopted at the head office
would generally apply to the Branch and are expected to be adequate. The Regulator considers, as part of its authorisation of a Branch and on-going supervision, the adequacy of regulatory and supervisory arrangements applicable in the home jurisdiction, including a corporate governance framework adopted and implemented by the head office (see the GPM). The Regulator is empowered to require a dedicated committee to act for the Governing Body in relation to corporate governance practices of Banks and certain Insurers that are Branches. Best practice relating to corporate governance
1011. In addition to the considerations noted above, best practice that an Authorised Person
may adopt to achieve compliance with the applicable corporate governance standards is set out in Guidance at Appendix 1.1. An Authorised Person may, where the best practice set out in Appendix 1.1 is not suited to its particular business or structure, deviate from such best practice or any aspects thereof. The Regulator will expect the Authorised Person to demonstrate to the Regulator, upon request, what the deviations are and why such deviations are considered by the Authorised Person to be appropriate. An Authorised Person should periodically undertake a review of its corporate governance, and its effectiveness against best practice. The Regulator may request a copy of the output of such periodic reviews. … Senior Manager
5.3.7 The Senior Manager function is carried out by an individual who is responsible either
alone or jointly with other individuals for the management, supervision or control of one or more parts of an Authorised Person's Regulated Activities who is:
(1) an Employee of the Authorised Person; and (2) not a Director or Partner of the Authorised Person. Guidance

1. In respect of a Fund, the Regulator would expect expects the Fund Manager to
   appoint at least one individual other than the Senior Executive Officer to carry out Senior Manager functions in relation to the Fund such as managing operational risk and other internal controls.
2. In respect of a Bank or an Insurer other than Captive Insurers or Authorised
   ISPVs, the Regulator expects the appointment of at least one individual other than the Senior Executive Officer as a Senior Manager to advise its Governing Body and senior management of relevant risks in accordance with Rule 3.3.6(1). …

Appendix 2
8.10.6 Each Authorised Person and Recognised Body must advise the Regulator
immediately if it becomes aware, or has reasonable grounds to believe, that any of the following matters may have occurred or may be about to occur:
(1) the Authorised Person or Recognised Body’s failure to satisfy the fit and proper requirements; … (6) prior to any proposed restructuring, merger, acquisition, reorganisation, divestiture or business expansion which could have a significant impact on the Authorised Person or Recognised Body’s risk profile or resources; … (9) non-compliance with Rules due to an emergency outside the Authorised Person or Recognised Body’s control and the steps being taken by the Authorised Person or Recognised Body. 8.10.6A Major acquisition or establishment of subsidiary (1) An Authorised Person in Category 1, 2 or 5 must notify the Regulator in writing prior to:
(a) establishing or acquiring a subsidiary, regardless of its type of activity, other than an entity which is to be used purely as a special purpose vehicle to provide finance to the Authorised Person; (b) committing to any proposal to acquire or invest, whether directly or indirectly, in an entity, where the value of that acquisition is greater than or equal to 10% of the Authorised Person’s Capital Resources; or (c) committing to any proposal to acquire, whether directly or indirectly, 20% or more of the equity interest in an entity. (2) An Authorised Person which is a Domestic Firm, in Category 1, 2 or 5 must:
(a) notify the Regulator in writing of the proposed acquisition or investment, in accordance with 8.10.6A(1), at least 45 days prior to the proposed date for effecting the transaction; and (b) give to the Regulator all the relevant information relating to that acquisition or investment to enable the Regulator to assess the impact of the proposed transaction on the Authorised Person. (3) An Authorised Person which is a Branch in Category 1, 2 or 5, must:
(a) notify the Regulator in writing in advance of any proposed acquisition or investment in accordance with 8.10.6A(1); and (b) provide to the Regulator a copy of any information that their head office provided to their Non-ADGM Financial Services Regulator or any further information that the Regulator may request.

Appendix 2
(4) If the Regulator is not satisfied with any aspects related to a proposed transaction following a notification in accordance with Rule 8.10.6A(1), the Regulator may:
(a) require an Authorised Person not to proceed with the transaction; or (b) impose conditions on the proposed transaction or additional prudential requirements on the Authorised Person. (5) The procedures in Part 21 of the FSMR apply to a decision of the Regulator under 8.10.6A(4). (6) If the Regulator decides to exercise its power under 8.10.6A(4), the Authorised Person may refer the matter to the Appeals Panel for review. Guidance

1. Rule 8.10.6A(1) does not apply to:
   a. any interest held by way of security for the purposes of a transaction entered into in the ordinary course of the business of the Authorised Person; b. any shareholding or interest acquired or held by an Authorised Person in the course of satisfaction of debts due in accordance with the terms of a contract entered into by the Authorised Person as an incidental part of its ordinary business; or
   c. a routine transaction for managing the Authorised Person’s own investment
   portfolio, such as investments included in the trading book or those intended to be disposed of within a short term, which can reasonably be regarded as made for a purpose other than acquiring management or control of an entity either directly or indirectly.
2. When considering whether to exercise its powers under Rule 8.10.6A(4), the Regulator
   may have regard to:
   a. whether the Authorised Person has the financial, managerial and organisational capacity to handle the proposed investment or acquisition, this being particularly important where the entity being acquired or to which the investment relates is involved in non-banking related activities; b. the adequacy of the Authorised Person’s systems, controls and resources to identify, measure, monitor, manage and, as required, report exposures and risks arising from the activity;
   c. whether the proposed acquisition or investment will expose the Authorised
   Person to undue risks; d. whether the transaction exposes the Authorised Person to substantial contagion risks or hinders effective supervision, including the ability of the Regulator to exercise supervision on a consolidated basis, if applicable; e. whether the proposed acquisition will hinder effective implementation of corrective measures in the future, including whether the proposed acquisition creates an obstacle to the orderly resolution of the Authorised Person; and

Appendix 2
f. any other factors the Regulator considers to be relevant.
3. Prior notification in Rule 8.10.6A, and where relevant in 8.10.6(6), applies regardless of
the type of activity the relevant subsidiary or entity is or will be carrying out, whether financial services or otherwise. … APP1 BEST PRACTICE RELATING TO CORPORATE GOVERNANCE AND REMUNERATION A1.1 Best practice relating to corporate governance Guidance Roles of the Governing Body and the senior management
1. The Governing Body should adopt a rigorous process for setting and approving
and overseeing the implementation of, the Authorised Person or Recognised Body’s overall business objectives and risk strategies, taking into account the long term financial safety and soundness of the Authorised Person or Recognised Body as a whole, and the protection of its Customers and stakeholders. These objectives and strategies should be adequately documented and properly communicated to the Authorised Person or Recognised Body’s senior management, Persons Undertaking Key Control Functions (such as the heads of risk management and compliance) and all the other relevant Employees. Senior management should ensure the effective implementation of such strategies in carrying out the day-to-day management of the Authorised Person or Recognised Body’s business. … Internal governance of the Governing Body
5. The Governing Body should also ensure that the senior management is
responsible for carrying out regular stress testing on credit, operational, market, and liquidity risks. The Governing Body should annually review the stress scenarios and take action to address any perceived issues arising from those reviews. The Governing Body may delegate certain responsibilities to designated senior management committees where appropriate, for example an Asset and Liability Committee (ALCO), as contemplated in PRU.
6. The Governing Body should have appropriate practices and procedures for its own
internal governance, and ensure that these are followed, and periodically reviewed to ensure their effectiveness and adequacy. These policies and procedures should cover a formal and transparent process for nomination, selection, and removal of the members of the Governing Body (see the GPM), and a specified term of office as appropriate to the roles and responsibilities of the member, particularly to ensure the objectivity of his their decision making and judgment (see paragraph 11 of this Appendix). Appropriate succession planning should also form part of the Governing Body's internal governance practices. …

Appendix 2
8. The Governing Body should also ensure that when assessing the performance of
the members of the Governing Body and its Senior Managers and Persons Undertaking Key Control Functions, the independence and objectivity of that process is achieved through appropriate mechanisms, such as the assignment of the performance assessment to an independent member (see paragraph 11 of this
Appendix, and the GPM) of the Governing Body or a committee of the Governing
Body comprising a majority of independent members. See the GPM for the independence criteria for Authorised Persons and the GPM for the independence criteria for Recognised Bodies (see paragraph 9A(c)). Committees of the Governing Body
9. To support the effective discharge of its responsibilities, the Governing Body
should establish its committees as appropriate. The committees that a Governing Body may commonly establish, depending on the nature, scale and complexity of its business and operations, include the audit, Remuneration, risk, nomination, remuneration and ethics/compliance, nominations and risk management committees. In some cases, an ALCO, as referenced in paragraph 5, will be a committee of the Governing Body rather than a management committee. Where committees are appointed, they should have clearly defined mandates, authority to carry out their respective functions, and the degree of independence and objectivity as appropriate to the role of the committee. Committees should be made up of members with the knowledge, skills, experience and independence appropriate to the nature of the committee. 9A. If the functions of any committees are combined, the Governing Body should ensure such a combination does not compromise the integrity or effectiveness of the functions so combined. In all cases, the Governing Body remains ultimately responsible for the matters delegated to any such committees. a. Audit committee - An audit committee should include members with relevant skills and experience, including in the areas of audit practice, financial reporting and accounting and is responsible for, among other things:
i. monitoring the integrity of the financial statements and reviewing
significant financial reporting judgements contained in them;
ii. reviewing internal financial controls and, unless expressly addressed
by a separate risk committee or by the Governing Body itself, internal controls and risk management systems;
iii. monitoring and reviewing the effectiveness of the internal audit
function;
iv. making recommendations to the Governing Body in relation to the
appointment, re-appointment, removal and terms of engagement, including remuneration, of the external auditor;
v. reviewing and monitoring the external auditor's independence and
objectivity and the effectiveness of the audit process;
vi. developing and implementing policy on the engagement of the external
auditor to supply non-audit services; and

Appendix 2
vii. reviewing the adequacy of arrangements by which staff may, in
confidence, raise concerns about possible improprieties in matters of financial reporting or other matters to ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. b. Risk committee – a risk committee is responsible for, among other things:
i. advising the Governing Body on the overall risk appetite, overseeing
senior management’s implementation of the risk management strategy, reporting on the risk culture, and interacting with and overseeing the risk management function;
ii. overseeing the strategy of the Authorised Person or Recognised Body
for:

• the management of capital and liquidity; and
• dealing with all the relevant risks;
  iii. ensuring that the strategy is consistent with the established risk
  appetite; and
  iv. receiving and reviewing regular reports about:
• the Authorised Person’s or Recognised Body’s risk profile;
• the risk profile in the light of the approved risk appetite and risk
  limits; and
• any limit breaches and actions taken as a result of such
  breaches.
  c. Nomination committee - a nomination committee is responsible for making
  recommendations to the Governing Body for the appointment of new Directors, having assessed such individuals to ensure they are fit and proper with relevant knowledge, skills and expertise. The committee may also assess individuals to be appointed to senior management, including Approved Persons and Key Individuals. It should aim to ensure that the Governing Body is appropriately balanced with a view to the best interests of the entity. The committee may also assess the performance of the Governing Body and senior management. d. Remuneration committee - a remuneration committee is responsible for developing, adopting and overseeing a written Remuneration policy; see
  Appendix 1.2.
  e. Ethics/compliance committee - an ethics/compliance committee is responsible for overseeing the arrangements that are in place to support appropriate conduct of business by an Authorised Person or Recognised Body in line with the corporate values, professional standards and code of ethics referred to in paragraph 2 of this Appendix. This can include promoting proper decision-making, compliance with laws, regulations and internal rules relating to the conduct of business and due consideration of reputational risks associated with these that may arise.

Appendix 2
Independence and objectivity
10. The Governing Body should establish clear and objective independence criteria
which should be met by a sufficient number of members of the Governing Body and any committees it establishes to promote objectivity and independence in decision making by the Governing Body., See the GPM for particularly the independence criteria of the relevant chair.
11. A Non-Executive Director will not be considered to be an Independent Non￾Executive Director where one or more of the following criteria are met:
a. they have already served as a member of the Governing Body for a significant period; b. they have been an Employee of the Authorised Person or Recognised Body or its Group within the last five years;
c. they have or have had, within the last three years, a material business
relationship with the Authorised Person or Recognised Body, either directly or as a Partner, Shareholder, Director or senior Employee of another body that has such a relationship with that entity; d. they receive or have received, in the last three years, additional remuneration or payments from the Authorised Person or Recognised Body apart from a Director's fee, or participate in the Authorised Person’s or Recognised Body’s share option or performance-related pay scheme, or are a member of the Authorised Person’s or Recognised Body’s pension scheme; e. they are or have been a Director, Partner or Employee of a firm which is the Authorised Person's or Recognised Body’s external auditor; f. they have close family ties with any of the Authorised Person’s or Recognised Body’s advisers, Directors or senior Employees; g. they hold cross Directorships or have significant links with other Directors through involvement in other Companies or bodies; h. they represent a significant Shareholder.

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Appendix 3
GLOSSARY (GLO)
*In this document underlining indicates new text and striking through indicates deleted text.

Appendix 3

1. INTRODUCTION
   1.1 Application
   1.1.1 This Rulebook ("GLO") applies to every Person to whom any of the Rulebooks apply.
   1.2 Defined Terms
   1.2.1 In the Rulebooks:
   (1) a word or phrase which is defined in GLO is a defined term and has the meaning given in GLO; and (2) a word or phrase which relates to a defined term must be interpreted accordingly. … Defined Terms Definitions Fiat-Referenced Token Has the meaning given in section 258 of FSMR. Relevant Money Means:
   (a) Means sums received from or for the benefit of a Payment Service User in the course of the execution of a Payment Transaction, whether held on behalf of a Payment Service User in a Payment Account or exchanged for a Payment Instrument or Stored Value, or sums received from a Payment Service Provider for the execution of a Payment Transaction on behalf of a Payment Service User.; or (b) where the Authorised Person has issued a Fiat-Referenced Token:
   (i) proceeds earned from the issuance of a Fiat-Referenced Token; (ii) interest or other gains earned from the holding of Reserve Investments; or (iii) proceeds earned from the sale of Reserve Investments. Reserve Account Means an account established with:
   (a) an Authorised Person which is authorised under its Financial Services Permission to Provide Custody; or (b) a Third-Party Agent located outside ADGM, which is intended to hold Reserve Investments. Reserve Assets Means:
   (a) Relevant Money arising from undertaking the Regulated Activity of Issuing a Fiat-Referenced Token; and (b) Reserve Investments.

Appendix 3
Defined Terms Definitions
Reserve Investments Means:
(a) cash equivalents and debt securities with up to three-month residual maturity issued by; (i) the government or central bank of the jurisdiction of the fiat currency to which the Fiat-Referenced Token is referenced; or (ii) organisations that are of both a governmental and an international nature of Credit Quality Grade 1 for CR Exposures; (b) public money-market funds which invest in government debt, subject to Regulator-approved:
(i) limits on the value of Reserve Investments to be held in such funds; and (ii) credit ratings of such funds; and (c) reverse repurchase agreements overcollateralised by debt securities issued by a government or central bank of pegged currency on an overnight basis, with a counterparty that is not affiliated with the issuer and is of strong financial standing. Safe Custody Asset Means:
(a) Means a designated Client Investment, which is not the property of the Authorised Person, which is held or to be held for safekeeping by an Authorised Person or Third Party Third￾Party Agent.; or (b) a Reserve Investment. Third-Party Agent Means, in relation to a Client Account or a Reserve Account, a Financial Institution including a bank, custodian, an intermediate broker, a settlement agent, a clearing house, an exchange and “over-the-counter” counterparty acting in the capacity of a third party agent.

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Appendix 4
Guidance & Policies Manual (GPM)
*In this attachment underlining indicates new text and striking through indicates deleted text.

Appendix 4
…
2.11 Naming conventions
2.11.1 The Regulator follows international best practices in relation to naming conventions
to ensure that entities operating in or from the ADGM use names that are fair, clear and not misleading.
2.11.2 In accordance with section 60(1) of the Commercial Licensing Regulations and
section 50 of the Companies Regulations, any applicant for incorporation or
registration in the ADGM needs to seek consent to the use of certain words in its name, including names which use the words “bank”, “insurance”, “fund”, “stock exchange”, “trust” and other terms, as detailed in the Business and Company Names Rules.
2.11.3 Consent will usually only be given to the use of a particular name if the use of the
name would not be misleading. A name would be considered misleading where is does not accurately describe the actual activities or legal status of the firm or where the name implies that the firm has a particular status that it in fact does not have.
2.11.4 For banks, the Regulator will, therefore, only permit an Authorised Person to use the
word “bank” or any of its derivatives, if the firm holds a licence to Accept Deposits and/or Manage a Profit Sharing Investment Account on an Unrestricted basis. For a branch of a foreign bank, which is licensed as a bank in its home state jurisdiction, if the word ‘bank’ or any of its derivatives are in the head office’s name, because a branch is not a separate legal entity, such a firm should use its head office name with added words which describe its legal status as a branch. This would only apply if the head office’s licence in its home state includes authorisation to Accept Deposits or the equivalent. This is to ensure that the name does not mislead in any way.
2.11.5 The same general principles apply to the use of the words “insurance” and any of its
derivatives, such as “insurer”, “reinsurer”, “insurance/reinsurance company”, “insurance/reinsurance broker” or similar. Similarly to the use of the words “fund”, “stock exchange”, “exchange”, “trust” and “trustee” or any other derivatives.