Qatar Financial Centre (QFC) Schemes

• The Qatar Financial Centre (QFC) divides schemes into QFC schemes and non-QFC schemes
• Non-QFC schemes are outside the QFC's jurisdiction
• QFC schemes are established and registered in the QFC under:
  • COLL (Collective Investment Funds Rulebook): Qualified investor schemes or retail schemes.
  • PRIV (Private Placement Schemes Rulebook): Private placements.

Scheme Types

• Qualified investor schemes, retail schemes, and private placements have different regulatory requirements
• Requirements are based on scheme's nature, risk profiles and target investors
• COLL offers various scheme structures like umbrella, Shariah-compliant, property, and money market funds
• Private placement funds target more sophisticated investors

Private Placement Schemes

• Typically highly specialized
• May not require an independent entity

QFC Schemes Features

Retail Scheme (UCITS-type)

• Investors: All
• Fund Vehicle: CIC or CIP
• Rules Applying: COLL COND
• Open or Closed-Ended: Open-ended
• Key Entities: Operator (independent entity)
• Investment/Borrowing Restrictions: Enforced diversification, liquid investments, limited borrowing (10% of scheme property), no real estate

Qualified Investor Scheme

• Investors: Only qualified investors
• Fund Vehicle: Any
• Rules Applying: COLL COND
• Open or Closed-Ended: Open-Ended
• Key Entities: Operator (independent entity)
• Investment/Borrowing Restrictions: Less liquid investments allowed, including real estate and commodities, borrowing allowed up to 100% of scheme property

Private Placement Scheme

• Investors: Only qualified investors (less than 100)
• Fund Vehicle: Any
• Rules Applying: PRIV COND
• Open or Closed-Ended: Either
• Key Entities: Operator (independent custodian)
• Investment/Borrowing Restrictions: No restrictions

Collective Investment Scheme (CIS) Concepts

• Basic CIS concepts and terms are consistent across retail, qualified investor, and private placements
• Rules are in COLL and PRIV

Defining a Collective Investment Scheme

• Arrangement that is a collective investment fund

Criteria:

• Purpose: Enable participants to share in profits or income from property
• Property Condition:
• Arrangement involves property of any kind
• Participants lack day-to-day control over property management
• Investment Condition:
• Participant contributions/income are pooled
• Property is managed by the operator

Pool of Funds

• Investors' contributions are collectively pooled

Regulatory Authority

• Specifies conditions where arrangements don't constitute a CIS

QFC Registration

• A CIS established in the QFC and registered as a private placement scheme must meet certain criteria:
• Established in QFC
• Registered as a private placement scheme
• Has no more than 100 unitholders

Scheme Participants

• Definition: person contributing to the scheme property

Scheme Property

• Definition: property held for or in the scheme. Includes:
• Money
• Bonds, securities, shares
• Rights to interest, dividends, or income
• Other things in action
• Claims, easements, liens
• Documents evidencing title

Unit

• Definition: Represents a participant's rights/interests
• Nature of rights differ by scheme form

Unitholder

• Definition: Person named in scheme's records for the unit
• For QFC schemes, name is in unitholder register or the Qatar Central Securities Depository's (QCSD) registry

QFC Scheme

• Established and registered in the QFC under relevant rules

Non-QFC Scheme

• Not established in the QFC

Operator

• Definition: Manages the scheme and its property
• Described as the scheme's operator for QFC schemes
• May outsource management

Jurisdiction

• Law where scheme is established determines the managing entity
• Can be the State of Qatar, a foreign country, or the QFC

Independent Entity

• Definition: Safeguards the scheme property. In QFC schemes, it's the independent entity. May be a 'depository' or 'trustee' for non-QFC schemes.

Open-Ended Scheme

• Permits unit redemption, continuously or periodically

Closed-Ended Scheme

• Does not permit unit redemption

QFC Requirements

• CIS registered under QFC rules must be open-ended
• Private placements may be open-ended or closed-ended
• QFC retail property fund can be open-ended or closed-ended
• Real estate investment trust (REIT) must be closed-ended

Umbrella Scheme

• Contributions of unitholders are pooled separately for different parts of scheme property
• Private placements must be open-ended umbrella schemes

Qualified Investors and Retail Customers

• Can be a qualified investor or retail customer for a QFC scheme or authorized firm

Qualified Investor (QFC scheme)

• A business customer or market counterparty if the scheme were an authorized firm and that person were a client of the scheme.
• A business customer or market counterparty of an authorized firm in relation to dealings in investments that consist of the units in the scheme.

Retail Customer (QFC scheme)

• A retail customer of the scheme if the scheme were an authorized firm and that person were a client of the scheme.
• A retail customer of an authorized firm in relation to dealings in investments that consist of the units in the scheme.

Restriction

• Private placements only open to qualified investors

QFC Scheme Types

• Qualified investor scheme
• Retail scheme

Retail Schemes

• Undertakings for collective investment in transferable securities directive (UCITS) - type schemes or property funds.

UCITS Scheme

Constitutional document needs to state that it is a UCITS-type scheme or sub-scheme of an umbrella scheme that is a UCITS-type scheme.

Property Fund

Scheme’s constitutional document states it is a QFC retail property fund, or if the scheme is an umbrella scheme that is a property fund and each sub-scheme would be a property fund if it were a separate scheme.

Legal Forms/Structures for QFC Schemes

• Collective Investment Company (CIC): Company incorporated under the Companies Regulations 2005. Articles establish the company for CIS purposes. Open-ended CICs must be open-ended with variable share capital.
• Collective Investment Partnership (CIP): Limited partnership under the Partnership Regulations 2007. Partnership agreement establishes the partnership for CIS purposes.
• Collective Investment Trust (CIT): Express trust under the Trust Regulations 2007. Trust instrument states that the trust is established for CIS purposes.
• Another permitted form if QFC Law allows or if QFC Authority approves via licence

Islamic Fund

• Constitutional document of the scheme states that the scheme is an Islamic fund

For Islamic Funds

• Operator must prepare and keep all financial accounts and statements in accordance with the accounting standards of Financial Accounting Standard (FAS) 14 issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
• Operator must ensure the fund needs to have a Shariah supervisory board.

Money-Market Funds

• Constitutional document of the scheme states that the scheme is a money-market fund

Requirements

• Fund complies with its primary investment objective
• Comply with investment restrictions
• An approved money-market instrument is a high-quality approved money-market instrument if it has been:
• Rated by at least one rating agency
• Awarded the highest available credit rating by each rating agency

Scheme Property

• Consists of an approved money-market instrument, the operator must monitor the instrument to ensure that it continues to be of high quality, liquidity through same-day or next day settlement
• Weighted average maturity of its investments must not exceed 60 days
• Operator must conduct a valuation of the scheme property on a mark-to-market basis at least once every week

Other Types of QFC Schemes

• Feeder Funds
• Fund of Funds
• Property Funds

Non-QFC Schemes

• A retail customer scheme if it is declared to be a retail customer scheme by the Regulatory Authority, via a written notice published on an approved website
• A client scheme if it is not a retail customer scheme

Constitutional Document Requirements

• CIC: the articles of association of the company
• CIP: the partnership agreement of the partnership
• CIT: the trust instrument of the trust
• Another permitted form of QFC scheme – any instrument creating the legal form of the entity.
• The constitutional document of a QFC scheme must include all the statements and provisions required by the relevant schedules for collective investment schemes and private placements, the content of which is outside the scope of this workbook.

QFC Requirements

• The constitutional document of a QFC scheme must not contain any provision that conflicts with any provision of these rules.

Prospectus Requirements

• The operator of a collective investment scheme or private placement scheme must ensure that a prospectus is drawn up for the scheme in accordance with the rules.
• The latest filed prospectus, and the latest filed translation of the prospectus must be available free of charge to invest in the scheme before the person buys units

Risk management requirements

• For a UCITS-type scheme, the operator must:
• The quantitative limits applying to the risk management of the scheme
• The methods used in relation to risk management
• Any recent developments in relation to the risk and yield of the main categories of investment.
• Operator must ensure that the scheme's prospectus at all times contains all the information that investors and their professional advisers reasonably require for making an informed judgement about:
• The merits and risks of participating in the scheme
• The extent and characteristics of the risks accepted by participating in the scheme.

General Rulebook

• Governance and Controlled Functions Rules (CTRL)

Governance Principles

• Rule 2.1.1 - Role of governing body; Rule 2.1.2 – Role of senior management; Rule 2.1.3 – Knowledge, skills and expertise; Rule 2.1.4 – Review

Role of Governing and Senior management

• It is the responsibility of the board of directors of an authorised firm that is a company to approve a corporate governance framework for the firm that is appropriate to the nature, scale and complexity of the firm's business, and senior management must ensure that corporate governance is effectively implemented and maintained throughout the firm's business.
• The majority of the board of directors of a firm established as a company need to be non-executive directors
• The governing body of an authorised firm must ensure that the firm reviews its corporate governance framework and risk management and internal controls framework appropriately

Obligations of the Governing Body

• Rule 2.2.1 – What is a firm's governing body; Rule 2.2.2 – Governing body's role; Rule 2.2.3 – Obligation to approve and update plans; Rule 2.2.4 – Obligation to approve risk management and internal controls framework

A firm's governing body depends on the type of firm as follows:

• For a QFC entity or partnership board of directors.
• The governing body of an authorised firm is responsible for:
• Managing firm: Approving the corporate governance framework to manage the firm.
• Ensuring firm's financial soundness: Maintaining transparency and disclosure.
• Interests: being mindful of the legitimate interests of depositors, policyholders, clients and other stakeholders when making decisions

Governing Body Obligations

• Approve strategic and business plans appropriate to the nature, scale and complexity of the business
• Approve the firm's risk management and internal controls framework
• Take care to maintain a clear and appropriate allocation of responsibilities, senior management’s appointment, performance assessment,remuneration
• Establish and maintain for itself and the whole firm a remuneration policy appropriate to the nature. Guaranteed bonuses are not consistent with sound risk management. The remuneration policy must be periodically reviewed.
• Ensure that each part of the firm's corporate governance framework, internal controls framework is designed to avoid conflicts of interest, if not be able to mitigate it effectively
• Governing, risk frameworks also have to review at least every three years by the internal auditor

Controlled Functions

• Rule 3.1.1 - What Functions are Controlled Functions?; Rule 3.1.2 – What is the Non-Executive Governance Function?; Rule 3.1.3 – What is the Executive Governance Function?; Rule 3.1.4 Financial Soundness: What is the Finance Function?.

The following functions are identified as controlled functions:

• Compliance oversight function
• Risk management function
• Internal audit function
• Actuarial function

Outsourcing

• Rule 5.1.2 - Obligation to have an outsourcing policy; Rule 5.1.3 – Responsibility for outsourced functions
• Outsourcing policy established by an authorised firm at least provide for what may be outsourced, the policies and procedures need to be reviewed including assessing the risks
• Outsourcing of a function does not relieve the firm's governing body from responsibility and must exercise care in carrying out its obligations in relating to outsourced functions
• Material outsourcing means the outsourcing of a function that cast the firm's ability to comply to principles its authorisation for business
• Senior management must ensure that the service provider has reliability and the risks that the outsourcing poses
• agreement requires the service provider to deal with the RA and grant the authority a possession in control

Rules of Authorized Firm

• The rule sets out the wording required to be used when an authorised firm shows its regulatory status on its business documents
• The use of the correct wording helps avoid misrepresentation of that status by using any for example 'Authorised by the Qatar Financial Centre Regulatory Authority'

Business documents

• Include but are not limited to
• Terms of business
• Letterheads (post, fax or electronic)
• Not included under this rule requirement are:
• Account statements
• Business cards

Changes in Core Details

• Any proposed change in relation to a matter must give the Regulatory Authorisation ten business days
• Must inform the Regulatory Authority as soon as able immediately if there is not enough ten business days

Maintenance of Records

• Records are kept under any regulations
• Records must be capable of being reproduced in paper form within a reasonable period, not exceeding three days
• Circumstances must consider requirements for preservation, confidentiality, security,access
• With the exception of records relating activity which is unregulated, maintan English

If copy documents are kept, rather than originals, the copies must be certified

• A document that is issued by the authorized firm must be signed by a director or secretary
• A document that is in responsibility for maintaining the original document from a public body must be signed by authorized body
• Any records documents must be maintained by an authorised firm for at least six years

Reporting to the Regulatory Authority

• Reporting to the Events has to be reported immediately
• Rule 4.1.3 - Significant events; Rule 4.1.4 – Fraud and errors; Rule 4.1.5 – Actions by other regulators

Signification Factors

• the authorised firm's failure to satisfy fitness and propriety
• matters which could adversely effect on the authorized firm and employees

Fraud

• the authorised firm becomes aware that an employee may have committed fraud against one of the firm's customers

Action by Other Regulators

• Application must tell Regulatory Authority about the event immediately after regulators

Action Against the Firm

• A civil or criminal action is being brought against authorised firm , that can affect its financial resources

Winding up / bankruptcy and insolvency

• Consider any for a windup to Regulatory immediately

Protected Reporting

• Confidential reports about wrong doing made to Authorized Firms - Must be done reasonably
• An offier concerned and is responsibile for the matters

Policy

• Must have Written policy in Place , with two are more Independent Channels
• Provide , investigation , retaliation and any communication

Controllers

• Requirements for authorization applicants, with the entities related the firm or applicant and any system changes