Qatar Financial Centre (QFC) Law and Regulations PDF

QFC Law and Financial Services Regulations 1. Introduction to the Qatar Financial Centre (QFC) 1 The Qatar Financial Centre (QFC) is a financial and business centre established...

QFC Law and Financial Services Regulations 1. Introduction to the Qatar Financial Centre (QFC) 1 The Qatar Financial Centre (QFC) is a financial and business centre established by the Government of Qatar and located in Doha. The QFC has been designed to attract international financial services institutions and major multinational corporations and to encourage participation in the growing market for financial services in Qatar and elsewhere in the region. The QFC operates to international standards and provides a first class legal and business infrastructure for those doing business within the centre. The QFC’s commercial and regulatory environment and systems conform to international best practices and are separate from, and independent of, the host Qatari systems. The QFC is operated by the Qatar Financial Centre Authority (QFCA), which is responsible for the commercial strategy and business development of the centre and provides its administrative functions. Regulatory systems are developed and operated by the Qatar Financial Centre Regulatory Authority (QFCRA). 1.1 Permitted Activities in the QFC Learning Objective 1.1.6 Know which activities fall within the general categories of permitted activities Financial Services Regulations (FSR), Schedule 3 – Regulated Activities and Permitted Activities, Part 4 – Activities in the QFC under the QFC Law QFC Law prescribes a range of activities (termed ‘permitted activities’) which may be conducted in or from the QFC. These activities are those most commonly recognised as constituting financial services or services found in support of financial services businesses, together with a number of related or corporate headquarters-type activities. There are two sub-classifications within the range of permitted activities: non-regulated activities, which, as the name suggests, do not require extensive supervision, and regulated activities, which are those financial services (such as banking, insurance and securities businesses) that require close and continuing scrutiny to ensure prudential soundness and proper conduct. Entities wanting to conduct regulated activities require authorisation by the QFCRA. Source: extracts from the QFCRA’s A Guide to the Application Process, Chapters 1 and 2. 3 QFC Law provides that no activities other than permitted activities may be carried on in the QFC. The following activities are the permitted activities itemised in QFC Law: 1. Financial, banking, and investment business. This includes, but is not limited to, all business activities that are generally provided by investment, corporate and wholesale financial institutions, as well as Islamic and electronic banking business. 2. Insurance and reinsurance business of all categories. 3. Money market, stock exchange and commodity market business of all categories, including trading and dealing in precious metals, stocks, bonds, securities, and other financial activities derived from these activities. 4. Money and asset management business, investment fund business, the provision of project finance and corporate finance in all business fields and Islamic banking and financing business. 5. Funds administration, fund advisory and fiduciary business of all kinds. 6. Pension fund business and the business of credit companies. 7. The business of insurance broking, stockbroking, and all other financial brokerage business. 8. Financial agency business and the business of provision of corporate finance and other financial advice, investment advice and investment services of all kinds. 9. The provision of financial custodian services and the business of acting as legal trustees. 10. Shipbroking and shipping agents. 11. Providing classification services and investment grading and other grading services. 12. Business activities of company headquarters, management offices and treasury operations and other related functions for all kinds of business, and the administration of companies generally. 13. Providing professional services including but not limited to audit, accounting, tax, consulting and legal services. 14. Business activities of holding companies, and the provision, formation, operation and administration of trusts and similar arrangements of all kinds. 15. Providing, forming, operating and administrating companies. 2. QFC Financial Services Regulations 2.1 Objectives of the QFC Learning Objective 1.1.1 Know the objectives of the QFC Authority Article 5 – Law No. 7 of 2005 – Objectives of the QFC Authority The QFC Law (Law No. 7 of 2005) was signed by the Emir of Qatar on 9 March 2005 and became effective on 1 May 2005. The QFC Law (as amended by Law No. 2 of 2009) provides for the basic structure of the QFC and establishes the QFC Authority, the QFCRA, the Civil and Commercial Court of the QFC and the QFC Regulatory Tribunal. The commercial operations of the QFC are managed by the QFC Authority, which is established pursuant to Article 3 of the QFC Law. 4  QFC Law and Financial Services Regulations The objectives of the QFC Authority are: 1 1. to establish, develop and promote the QFC as a leading location for international finance and business, designed to attract international banking, financial services, insurance businesses, corporate head office functions and other business 2. to participate, in consultation with the QFCRA and the Appeals Body, in the establishment and maintenance of an appropriate legal and regulatory regime to govern the QFC and activities lawfully conducted within or outside the QFC by persons, companies or entities established within it 3. to ensure the QFC, including the QFC Institutions (the Companies Registration Office (CRO), the Tribunal and any other institution or body created under QFC law), have adequate finance, or are able to obtain adequate finance, so that they can finance their respective activities without undue difficulty and are financially stable 4. to act in accordance with and promote international best practice and to eliminate bureaucracy to the maximum extent possible, and 5. all other things reasonably considered by it to be necessary, desirable or appropriate to achieve, further or assist in relation to any of the above objects. 2.2 The QFCRA – Objectives Learning Objective 1.1.2 Know the regulatory objectives by which the QFCRA exercises its functions and powers under the QFC Law Article 12 (3) – Financial Services Regulations – Objectives of the Regulatory Authority The QFCRA exercises its functions and powers under QFC Law and these regulations, in accordance with its regulatory objectives, are set out in QFC Regulation No. 1 – FSR, Article 12 (3) The Objectives of the QFCRA. The QFCRA is entitled to take any action (or refrain from any action) it considers necessary, desirable or appropriate for, or incidental to, the exercise of its functions and powers. The objectives of the QFCRA are to: 1. promote and maintain the efficiency, transparency and integrity of the QFC 2. promote and maintain confidence in the QFC 3. maintain the financial stability of the QFC, including the reduction of systemic risk relating to the QFC 4. prevent, detect and restrain conduct which may cause damage to the reputation of the QFC, through appropriate means including the imposition of fines and other sanctions 5. provide appropriate protection to the licensed institutions, their clients and customers 6. determine appropriate protection, the QFCRA will take into account the following: a. the financial integrity of authorised firms. This includes establishing whether they have the appropriate financial resources in place as well as a robust system of internal controls 5  b. the degrees of protection which may be appropriate for clients or customers of authorised firms. The degree of protection required is dependent on the clients’ experience, expertise and business. Different types of clients will require different degrees of information c. the degree of risk involved in different kinds of investment or transaction, and d. the general principle that clients or customers of authorised firms should take responsibility for their own decisions 7. promote the understanding of the objectives of the QFC amongst users and other interested persons 8. ensure the QFCRA is run with a view to operating in accordance with the best international standards for the type of centre, and to establish and maintain the QFC as a leading financial centre in the Middle East 9. minimise the extent to which the business carried on can be used for the purposes of or in connection with financial crime. The QFCRA will in this respect take into consideration the appropriate systems, controls and procedures that need to be in place at the authorised firm to detect and prevent the incidence of financial crime. 2.3 Regulated Activities Learning Objective 1.1.3 Know what constitutes a regulated activity: (Articles 22, 23, 24, 25 & Schedule 3, Part 2) 1.1.4 Know which activities do not constitute regulated activities (Schedule 3, Part 1) 2.3.1 Background QFC Law states that only permitted activities can be carried out in or from the QFC. The permitted activities are set out in Articles 22–25 and Schedule 3, Part 4 of QFC Financial Services Regulations (see section 1.1). These are shown as business activities, rather than regulated activities. In addition, QFC Law also states that no regulated activities can be carried out in or from the QFC, unless the appropriate approval, authorisation or licence has been formally obtained from the QFCRA. 2.3.2 Definition of a Regulated Activity The QFC defines a regulated activity as an activity which falls within the categories carried out ‘by way of business’ (see section 2.3.3) and is any of the following: 1. deposit-taking 2. effecting a contract of insurance 3. carrying out a contract of insurance 4. dealing in investments 5. arranging deals in investments 6. providing credit facilities 7. arranging credit facilities 8. providing custody services 6  QFC Law and Financial Services Regulations 9. arranging the provision of custody services 1 10. managing investments 11. advising on investments 12. operating a collective investment fund. Each of these activities is detailed further in section 2.6. Some business activities are exempt from being regulated (see section 2.4). 2.3.3 Activities Carried On ‘By Way of Business’ When an activity is carried on ‘by way of business’, it means that the person holds himself out to others engaging in that activity or solicits persons other than authorised firms to engage in this type of activity. If the person does not hold himself out as carrying out the activity on a day-to-day basis, they do not carry out the activity by way of business. In order to determine this, the frequency with which the activity is undertaken and any distinguishing characteristics are taken into account. The QFCRA determines when an activity is regarded as being carried out by way of business. 2.3.4 Regulated Activities for Retail Customers In order for a person to be authorised to carry on regulated activities for retail customers, the person needs to have put in place measures to ensure the customer’s needs are adequately protected. The characteristics of retail customers are defined in the Rules by the QFCRA. 2.3.5 Activities That Are Not Regulated Activities Activities that are not considered regulated activities in accordance with Schedule 3, Part 2 of the QFC Law are identified as: 1. shipbroking and shipping agents 2. provision of classification services, and investment grading and other grading services 3. company headquarters, management offices and treasury operations and other related functions for all kinds of business, and the administration of companies generally 4. providing professional services including but not limited to audit, accounting, tax, consulting and legal services 5. holding companies, and the provision, formation, operation and administration of trusts and similar arrangements of all kinds, and 6. provision, formation, operation and administration of companies. 7 2.4 Exempt Activities Learning Objective 1.1.5 Know which activities are exempted from the Financial Services Regulations (FSR Schedule 3, Part 1) An activity will not constitute a regulated activity for the purposes of these regulations if it falls within one or more of the following categories, which are set out in Schedule 3, Part 1 of the QFC Financial Services Regulations (FSR). 2.4.1 Group Exemption The ‘group exemption’ applies to an activity with, or for, persons within the same group as the person undertaking that activity, except for insurance contracts. 2.4.2 Joint Venture Exemption The ‘joint venture exemption’ applies to an activity carried on between parties that are, or propose to become, participants in a joint venture and when the activity is carried on for that joint venture. This does not apply to contracts of insurance. A ‘joint venture’ is an enterprise into which two or more persons enter into a business venture for commercial purposes, which is not a regulated activity. A ‘participant in a joint venture’ includes a person who is within the same group as a participant in that joint venture; and the joint venture vehicle. 2.4.3 Trustee Exemption The trustee exemption applies to activities carried out by a trustee on the instructions of the beneficiary and will not be classified as a regulatory activity if it was carried out by the beneficiary. This only applies if the trustee is not separately remunerated for carrying on that activity. 2.4.4 Professional Business Exemption A ‘professional business’ is defined as the business of providing legal, actuarial and accounting services. The ‘professional business exemption’ applies to the activities of arranging deals in investments, arranging credit facilities, arranging the provision of custody services and advising on investments providing that the person carrying on the activity is not separately remunerated for the work. In order to be exempted, the activity needs to be carried on in the course of a professional business that does not otherwise consist of the carrying on of a regulated activity; and is a necessary part of that profession or business provided. 8  QFC Law and Financial Services Regulations 2.4.5 Sale of Body Corporate Exemption 1 The sale of body corporate exemption applies to dealing in investments where it concerns the sale of shares in a body corporate from one qualifying party to another with the result that the party buying the shares holds 50% or more of the voting shares. This means that the purchasing party has acquired day- to-day control of the affairs of that body corporate. The sale of body corporate exemption applies to advising on investments, arranging deals in investments and arranging credit facilities that are made in connection with such a sale. To qualify for these purposes, the buyer and seller must be: 1. a body corporate, a partnership or an individual, or 2. a group of individuals each of whom is, or will become, a director or manager of the body corporate or a close relative or the trustees of any such individuals. 2.4.6 Employee Share Scheme Exemption The ‘employee share scheme exemption’ applies to dealing in investments, providing custody services, arranging the provision of custody services, arranging deals in investments and advising on investments as part of an employee share scheme. In order for the exemption to apply, the activity needs to be carried out by the body corporate or a member of the same group. 2.4.7 Special Purpose Vehicle Exemption The ‘special purpose vehicle exemption’ applies to entities which have the characteristics of a project finance special purpose vehicle in relation to any financing or related activities undertaken by that entity. The QFCRA may determine the types of entity that will be considered to be a special purpose vehicle, the types of financing they may be exempt from and the circumstances under which the special purpose vehicle exemptions apply. 2.4.8 Collective Investment Funds Exemption The ‘collective investment funds exemption’ applies to the activity of dealing in investments by a collective investment fund in the circumstances and to the extent so provided in rules made by the QFCRA. 9 2.5 Specified Products Learning Objective 1.1.7 Know the types of investment or other products that are specified products FSR, Schedule 3, Regulated and Permitted Activities, Part 3 Specified Product Each one of the products detailed in this section is classified as a ‘specified product’. 2.5.1 Shares Other than a unit in a collective investment fund, a share or stock is the share capital of: any body corporate (wherever incorporated), or any unincorporated body constituted under the law of a country or territory outside the QFC. 2.5.2 Debt Instruments An instrument creating or acknowledging indebtedness that is: a debenture a debenture stock a loan stock a bond a certificate of deposit, or any other instrument creating or acknowledging a present or future indebtedness that is transferable without the consent of the borrower. However, the following are not considered to be debt instruments: acknowledging or creating a debt for goods or services a bill of exchange (including a cheque), banker’s draft or letter of credit but not a bill of exchange accepted by a banker a banknote, a statement showing a balance on a bank account a lease or other disposition of property, or a contract of insurance. 2.5.3 Credit Facility A credit facility is any advance, loan or other similar facility for which the person to whom it is given has (in)direct access to the funds. Any advance, loan or facility provided as part of a debt instrument (see section 2.5.2) is not a credit facility. 2.5.4 Warrant Warrants or other instruments entitling the holder to subscribe for shares or debt instruments. 10  QFC Law and Financial Services Regulations 2.5.5 Securities Receipt 1 A securities receipt is a certificate or other instrument which confers contractual or property rights in respect of a share, a debt instrument or a warrant held by a person who is not the person on whom the rights are conferred. The transfer of securities receipts may be effected without requiring the consent of the holder of the security. An option is not a securities receipt. 2.5.6 Unit in a Collective Investment Fund A collective investment fund is any arrangement that enables the participants to participate in, or to receive profits or income from, the acquisition, holding, management or disposal of a property. In addition, participants may receive monies paid out of the profits of the collective investment fund, for example, in the form of dividends. A collective investment fund needs to meet the following two conditions: Property – participants do not have day-to-day control over their share of the property, and the property can take any form including money. Investment – contributions of the participants are pooled into a single investment. Pooling of funds in relation to separate parts of the property is not considered to be a single collective investment fund, unless the participants can exchange rights in one part for rights in another. The property needs to be managed as a whole. Specific rules may be introduced outlining the particular arrangements that do not constitute a collective investment fund. 2.5.7 Options Options confer the right, but not the obligation, to buy or sell shares, debt instruments, warrants, securities receipts, units in collective investment funds, futures, contracts for differences, currencies and metals or commodities at a future time at an agreed price. Specific rules may be issued excluding options which are entered into for commercial purposes. This includes the setting out of the circumstances in which a contract is to be regarded as made for either commercial or investment purposes. 2.5.8 Futures Futures contracts confer rights to sell a commodity or other property for delivery on a future date at a price agreed at the time the contract is made. In this context, futures are investment instruments and not entered into for commercial purposes. Rules may be issued to define the distinction between futures for commercial or investment purposes. A contract is not a future if the seller delivers or intends to deliver the property, or the purchaser takes or intends to take delivery of the property. 11 2.5.9 Contract for Differences (CFDs) Contract for differences (CFDs) confer rights under a contract for the purpose of securing a profit or avoiding a loss by reference to fluctuations in: 1. the value or price of any type of property 2. an index or other factor designated for the purpose. A contract is not a CFD if: 1. the parties intend that the profit is to be secured or the loss avoided by one or more of the parties taking delivery of the property underpinning the contract 2. money is received on the basis that the entire principal amount will be repaid (after deduction of reasonable fees, if relevant) but that any interest or other return to be paid on the sum received will be calculated by reference to fluctuations in an index or other factor, or 3. the contract is a contract of insurance. Rules may be issued that exclude certain CFDs which are entered into for commercial and not investment purposes, and setting out the circumstances in which a contract is to be regarded as made for either commercial or investment purposes for the purposes above. 2.5.10 Contract of Insurance A contract of insurance or reinsurance is either a general or a long-term insurance contract. Rules may be issued prescribing the circumstances in which a contract is a qualifying contract of insurance for the purposes of this definition. A general insurance contract must fall into one or more of the categories outlined in the table below: Category Description Contracts of insurance providing fixed pecuniary benefits or benefits in the nature of indemnity (or a combination of both) against risks of the person insured: 1. sustaining injury as a result of an accident or of an accident of a specified class 1 Accident 2. dying as a result of an accident or of an accident of a specified class, or 3. becoming incapacitated as a consequence of disease or of disease of a specified class, including contracts relating to industrial injury and occupational disease but excluding contracts falling within long-term insurance Category 4. Contracts of insurance providing fixed pecuniary benefits or benefits in the nature of indemnity (or a combination of both) against risks of loss to the 2 Sickness persons insured attributable to sickness or infirmity but excluding contracts falling within long-term insurance Category 4. 12  QFC Law and Financial Services Regulations Category Description 1 Contracts of insurance against loss of or damage to vehicles used on land, 3 Land vehicles including motor vehicles but excluding railway rolling stock. Railway rolling 4 Contract of insurance against loss of or damage to railway rolling stock. stock Contracts of insurance upon aircraft or upon the machinery, tackle, furniture 5 Aircraft or equipment of aircraft. Contracts of insurance upon vessels used on the sea or on inland water, or 6 Ships upon the machinery, tackle, furniture or equipment of such vessels. Contracts of insurance against loss of or damage to merchandise, baggage 7 Goods in transit and all other goods in transit, irrespective of the form of transport. Contracts of insurance against loss of or damage to property (other than Fire and natural land vehicles, railway rolling stock, aircraft, ships, and goods in transit) due 8 forces to fire, explosion, storm, natural forces other than storm, nuclear energy or land subsidence. Contracts of insurance against loss of or damage to property (other than Damage to land vehicles, railway rolling stock, aircraft, ships, and goods in transit) 9 property due to hail or frost or any other event (such as theft) other fire and natural losses. Contracts of insurance against damage arising out of or in connection with Motor vehicle 10 the use of motor vehicles on land, including third-party risks and carrier’s liability liability. Contracts of insurance against damage arising out of or in connection with 11 Aircraft liability the use of aircraft, including third-party risks and carrier’s liability. Contracts of insurance against damage arising out of or in connection with 12 Liability of ships the use of vessels on the sea or on inland water, including third-party risks and carrier’s liability. Contracts of insurance against risks of the persons insured incurring 13 General liability liabilities to third parties, the risks in question not being risks to which General Insurance Categories 10, 11 or 12 relates. Contracts of insurance against risks of loss to the persons insured arising 14 Credit from the insolvency of debtors of theirs or from the failure (other than through insolvency) of debtors of theirs to pay their debts when due. 1. Contracts of insurance against the risks of loss to the persons insured arising from their having to perform contracts of guarantee entered into by them. 2. Fidelity bonds, performance bonds, administration bonds, bail bonds or customs bonds or similar contracts of guarantee, where these are: 15 Suretyship a. effected or carried out by a person not carrying on the business of deposit-taking b. not effected merely incidentally to some other business carried on by the person effecting them, and c. effected in return for the payment of one or more premiums. 13  Category Description Contracts of insurance against any of the following risks, namely: 1. risks of loss to the persons insured attributable to interruptions of the carrying on of business carried on by them or to reduction of the scope of business so carried on Miscellaneous 2. risks of loss to the persons insured attributable to their incurring 16 financial loss unforeseen expense (other than loss such as is covered by contracts falling within general insurance Category 18), or 3. risks which do not fall within sub-paragraph (1) or (2) and which are not of a kind such that contracts of insurance against them fall within any other general insurance category. Contracts of insurance against risks of loss to the persons insured attributable 17 Legal expenses to their incurring legal expenses (including costs of litigation). Contracts of insurance providing either or both of the following benefits, namely: 1. assistance (whether in cash or in kind) for persons who get into 18 Assistance difficulties while travelling, while away from home or while away from their permanent residence, or 2. assistance (whether in cash or in kind) for persons who get into difficulties otherwise than as mentioned in sub-paragraph (1) above. A long-term insurance contract must fall into one or more of the categories outlined in the table below: Category Description Contracts of insurance on human life or contracts to pay annuities on human 1 Life and annuity life, but excluding (in each case) contracts within the linked long-term category defined below. Contracts of insurance to provide a sum on marriage, or on the birth of a Marriage and 2 child, being contracts expressed to be in effect for a period of more than one birth year. Contracts of insurance on human life or contracts to pay annuities on human life where the benefits are wholly or partly to be determined by references to Linked long- 3 the value of, or the income from, property of any description (whether or not term specified in the contracts) or by reference to fluctuations in, or in an index of, the value of property of any description (whether or not so specified). 14  QFC Law and Financial Services Regulations Category Description 1 Contracts of insurance providing specified benefits against risks of persons becoming incapacitated as a consequence of sustaining injury as a result of an accident, or of an accident of a specified class or of sickness or infirmity, being contracts that: Permanent 1. are expressed to be in effect for a period of not less than five years, or 4 health until the normal retirement age for the persons concerned, or without limit of time, and 2. either are not expressed to be terminable by the insurer, or are expressed to be so terminable only in special circumstances mentioned in the contract. 5 Tontines Annuity shared by subscribers to a loan or common fund, the shares increasing as subscribers die until the last survivor enjoys the whole income.. Capital redemption contracts, where effected or carried out by a person Capital who does not carry on a banking business, and otherwise carries on 6 redemption the specified activity of effecting contracts of insurance or carrying out contracts contracts of insurance. Consisting of: 1. pension fund management contracts, and 2. pension fund management contracts which are combined with contracts Pension fund of insurance covering either conservation of capital or payment of a 7 management minimum interest, where effected or carried out by a person who does not carry on a banking business, and otherwise carries on the specified activity of effecting contracts of insurance or carrying out contracts of insurance. 2.5.11 Deposit A deposit is a contract for the placement of a sum of money on the condition that it will be repaid, with or without interest or a premium. Deposits can be repaid on demand or at a time or in circumstances agreed between the parties. In this context, the person placing the funds is the payee and the party receiving the funds is the recipient. In the event money is paid under the following circumstances, it is not considered to be a deposit: 1. advance or part-payment under a contract for the sale, hire or other provision of property or services, and which is repayable only in the event that the property or services are not in fact sold, hired, or otherwise provided 2. security for the performance of a contract or in respect of a loss which may result from the non-performance of a contract, or 3. security for the delivery or return of property, whether in a particular state of repair or otherwise. 15 Rights under a contract will not be a deposit for the purposes of the first paragraph if the person who pays the money is: 1. carrying on a business consisting wholly or significantly of lending money 2. an authorised firm which has permission to carry on deposit-taking or to effect or carry out contracts of insurance 3. a member of the same group as the payee, or 4. a close relative, director, manager or controller of the payee. In addition, rights under a contract will also not be a deposit if the payee is: 1. a lawyer acting in the course of their profession duly licensed by the QFC Authority 2. the issuer of a debt instrument 3. the recipient of a credit facility, or 4. an authorised firm (other than one whose authorisation permits it to carry on deposit-taking) in the course of carrying one or more of the following activities: a. dealing in investments b. arranging deals in investments c. managing investments d. operating a collective investment fund, or e. provision of custody services. 2.5.12 Rights in Investments Any right or interest in any investment in specified products is defined in section 2.5. 2.6 Specified Activities The following activities are listed as regulated activities, under the heading Specified Activities in Schedule 3, Part 2 of the QFC Financial Services Regulations. 2.6.1 Deposit-Taking The activity of accepting money received as a deposit if: 1. that money is lent to others, or 2. any other activity of the person accepting the deposit is financed, at least to a material extent, out of the capital of, or interest on, that money. 2.6.2 Effecting a Contract of Insurance The activity of effecting a contract of insurance as principal. 2.6.3 Carrying out a Contract of Insurance The activity of carrying out a contract of insurance as principal. 16  QFC Law and Financial Services Regulations 2.6.4 Dealing in Investments 1 Dealing in investments is defined as: 1. the activity of buying, selling, subscribing for or underwriting investments or agreeing to do so, either as a principal or as an agent, or 2. the activity of buying, selling, underwriting or entering into a contract of insurance as agent or agreeing to do so. Exclusions to Dealing in Investments The following activities are not considered to be dealing in investments: 1. the issue by a body corporate of its own shares or debentures or of its own share warrants or debenture warrants, and 2. the acceptance by a person of an instrument creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation or assurance which that person has made, granted or provided. 2.6.5 Arranging Deals in Investments Arranging deals in investments consists of making or agreeing to make arrangements with a view to another person buying, selling, subscribing for or underwriting an investment or contract of insurance. Exclusions to Arranging Deals in Investments The following are excluded from the activity of arranging deals in investments: 1. a transaction, contract or facility in which one person is either the principal or an agent for another person 2. the issue by a body corporate of its own shares, debentures, warrants in its own shares or debenture warrants 3. the acceptance by a person of an instrument creating or acknowledging indebtedness in respect of any loan, credit, guarantee or other similar financial accommodation or assurance which that person has made, granted or provided, and 4. the provision of finance to enable a person to buy, sell, subscribe for or underwrite investments. A person does not carry on the specified activity of arranging deals in investments merely by providing the means by which one party to a transaction is able to communicate with other parties to such a transaction. 2.6.6 Providing Credit Facilities The activity of providing a credit facility to another person. 17 Exclusions to Providing Credit Facilities A person does not carry on the specified activity of providing credit facilities if the credit facility is to be provided by a regulated firm in the course of carrying on one or more of the following activities: 1. dealing in investments 2. arranging deals in investments 3. managing investments 4. operating a collective investment fund, or 5. providing custody services. 2.6.7 Arranging Credit Facilities The activity of arranging for the provision of a credit facility by one or more persons. Exclusions to Arranging Credit Facilities A person will not carry on the specified activity of arranging credit facilities if: 1. they are to be a party to the provision of credit facilities in question, or 2. they merely provide the means by which a person providing a credit facility communicates with the person to whom the credit facility is, or is to be, provided. 2.6.8 Providing Custody Services Providing custody services is the activity of both safeguarding and administering assets belonging to another person which consist of or include investments or long-term insurance contracts or agreeing to do so. For these purposes, the following activities do not constitute administering assets: providing information as to the number of units or the value of any assets safeguarded converting currency, or transmitting documents. Exclusions to Providing Custody Services A person does not carry on the specified activity of providing custody services if they do so under a delegation arrangement with an authorised firm which has permission to carry on the specified activity of providing custody services, providing that the authorised firm accepts a responsibility for the assets which is no less onerous than it would have been if it were doing the safeguarding and administration itself. 2.6.9 Arranging the Provision of Custody Services The activity of arranging for one or more persons to provide custody services. 18  QFC Law and Financial Services Regulations Exclusions to Arranging the Provision of Custody Services 1 A person will not carry on the specified activity of arranging the provision of custody if: 1. they are to provide custody services themselves, or 2. they merely provide the means by which the provider of custody communicates with the person to whom custody services are, or are to be, provided. 2.6.10 Managing Investments Managing investments is defined as managing, or agreeing to manage, assets belonging to another person when: 1. the assets consist of, or include investments or long-term insurance contracts, and 2. the arrangements for their management are such that the assets may consist of or include investments at the discretion of the person managing or offering or agreeing to manage them. 2.6.11 Advising on Investments Advising on investments constitutes giving, or agreeing to give, advice to a person on the merits of: 1. buying, selling, subscribing for or underwriting a particular investment or contract of insurance, or 2. exercising any right conferred by an investment to acquire, dispose of, underwrite or convert an investment or contract of insurance. Exclusions to Advising on Investments The giving of advice in a newspaper, journal, magazine or other periodical publication is excluded from the specified activity of advising on investments providing that the principal purpose of the publication or service taken as a whole (including any advertisements or other promotional material contained in it) is not advising on investments or leading or enabling a person to deal in investments, effect contracts of insurance or carry out contracts of insurance. 2.6.12 Operating a Collective Investment Fund Operating a collective investment fund is the activity of establishing, operating or winding up a collective investment fund. For these purposes, a person operates a collective investment fund if they: act in the capacity of trustee of a collective investment fund that takes the form of a trust act as transfer or registration agent for the collective investment fund, or provide valuation or accounting services for the collective investment fund, or otherwise have responsibility for the day-to-day administration of those parts of the business of the collective investment fund that do not constitute managing investments. 19  3. QFCRA Powers of Investigation Learning Objective 1.2.1 Know the QFCRA’s powers with regard to investigations Article 48 – Powers to Obtain Document and Information; Article 49 – Reports; Article 50 – Appointment of Investigators; Article 51 – Investigation of Companies, LLPs and Branches; Article 52 – Investigations: Duties and Powers; Article 53 – Admissibility; Article 54 – The Role of the Tribunal in Investigations; Article 55 – Self-Incrimination; Article 56 – Protected Items; Article 57 – Obstruction of the Regulatory Authority 3.1 Supervision and Investigations 3.1.1 Powers to Obtain Documents and Information The QFC Regulatory Tribunal may order the QFCRA to obtain documents and information from a person outside the QFC. The QFCRA may request the appropriate overseas regulator to assist in exercising the power in respect of any such person. The QFCRA may require specific information or specific documents or information or documents of a specified description to be produced within a reasonable time. The QFCRA may enter the premises of any person in the QFC at any time for the purpose of inspecting and copying information or documents stored in any form on such premises. The person must give the QFCRA all such assistance as it may reasonably require. 3.1.2 Reports The QFCRA may request reports by a nominated person on any matter about which the Regulatory Authority has required or could require the provision of information or production of documents described in section 3.1.1 above. The reports need to be requested by notice in writing given to a person, and the form in which the report is to be provided may be specified in the notice. The nominated person appointed to produce the report must be nominated or approved by the QFCRA. If a report has been requested, the person to whom a notice has been given must give the appointed person who will generate the report all reasonably required assistance. This obligation is enforceable on application by the QFCRA to the Tribunal. The costs of providing such a report shall be borne by the person to whom a notice has been given. 20  QFC Law and Financial Services Regulations 3.1.3 Appointment of Investigators 1 If it has a good reason for doing so, the QFCRA may appoint one or more competent investigators to conduct investigations into a suspected contravention of a relevant requirement and report accordingly. Competent investigators may, but do not have to, be employees of the QFCRA. The QFCRA must give written notice of the appointment of an investigator to all persons subject to investigation, unless it believes that giving such notice would risk frustrating the investigation in a material way. Any such notice must specify the purpose of, and reason for the investigation. A person under investigation is entitled to legal representation during the course of an investigation. Unless the person has been found to have contravened the relevant requirement, the QFCRA shall pay the costs and expenses of an investigation. The QFCRA or, if appropriate, the Appeals Body or Tribunal, may order that the person must pay the QFCRA in respect of the whole or any part of the costs and expenses of the investigation. The QFCRA may also appoint investigators in relation to companies incorporated or branches registered under the Companies Regulation as well as limited liability partnerships (LLPs) incorporated under the LLP regulations. If necessary for the purpose of the investigation, an investigator appointed to investigate the affairs of a company, branch or LLP may also investigate and report on the affairs of another entity which is (or has been) part of the same group of companies as the entity under investigation. The QFCRA can only appoint investigators for companies, branches and LLPs under the following circumstances: a. On the written request of the company or a member of the company holding at least 10% of the nominal value of the issued share capital. b. The QFCRA considers there are circumstances suggesting that the affairs of the entity are (or have been) conducted: with intent to defraud its creditors or any other person for a fraudulent or unlawful purpose, or in a manner unfairly prejudicial to some of its members. c. Actual or proposed acts or omissions by or on behalf of the entity are or could be prejudicial to some part of its members. d. Any person concerned with the formation or management of the entity or its affairs has been guilty of fraud, misfeasance or other misconduct toward the entity or its members in relation to the formation or management. e. Some, or all of the members of the entity have not been given all the information they are entitled to, or which they might reasonably expect with respect to the affairs of the entity. f. The company has been carrying on in, or from, the QFC a business which it is not permitted to carry on in the QFC. 21 3.1.4 Investigation Duties and Powers The QFCRA, or an investigator, may require a person to: attend a meeting produce specific documents or documents of a specific description, and/or provide any other information or assistance. Any such request needs to be in writing, and may specify a time and place, as well as a reasonable time period to produce the requested information or documents. If the QFCRA has reasonable grounds to believe that an approved individual may have engaged in conduct that may be grounds for withdrawal or variation of their status, the QFCRA may suspend or vary the individual’s approved status for the duration of the investigation insofar as the investigation relates to the individual. However, the QFCRA must give written notice of this to both the approved individual and the relevant authorised firm. In the event the investigation is related to a person, the QFCRA may apply to the Tribunal for an order to preserve all or any of the assets, books and records of the person and that they may not be moved or otherwise dealt with. Unless an investigation is discontinued, the investigator must provide a written report. 3.1.5 Admissibility of Evidence Any statement made, information given, or documents produced in compliance with a request by an investigator will be admissible as evidence in any proceedings. Any such information must also comply with requirements governing the admissibility of evidence in the relevant proceedings. 3.1.6 The Role of the Tribunal The QFCRA may apply to the Tribunal for assistance in the enforcement of their powers. The Tribunal shall provide such assistance as it considers appropriate given the circumstances. Assistance from the Tribunal includes the imposition of financial penalties for contravening the regulations; issuance of search orders; and issuance of orders for the seizure of documents and/or other information. 3.1.7 Self-Incrimination, Protected Items and Obstruction The QFCRA and the investigator may not require a person to produce, disclose or permit the inspection of a protected item. A communication or item is not a protected item if it is held with the intent to further a criminal purpose. Unless the request is related to protected items, refusal or failure to produce, disclose, or permit the inspection of any information or to answer any questions on the grounds that the information, document or answer may incriminate the person or make them liable to a financial penalty. 22  QFC Law and Financial Services Regulations A person must not do, or fail to do, anything that obstructs, or is intended to obstruct, the QFCRA in the 1 exercise of its functions. This includes, but is not restricted to: a. destruction of documents b. failure to give or produce information or documents c. failure to attend and answer questions d. giving false or misleading information e. failure to give assistance in relation to an investigation. 3.2 Discipline and Enforcement Learning Objective 1.2.2 Know the QFCRA’s powers with regard to discipline and enforcement Article 58 – Public Censure; Article 59 – Financial Penalties, Financial Services Regulation; Article 60 – Appointment of Managers; Article 61 – Undertakings; Article 62 – Prohibitions and Restrictions; Article 63 – Injunctions; Article 64 – Restitution Orders; Article 65 – Civil Proceedings; Article 66 – Appeals; Article 67 – Power of Regulatory Authority to Intervene in any Proceedings; Article 68 – Effect of Other Provisions; Article 69 – Procedural Irregularities Provisions included in this part of the regulations are additional to, and do not limit, any other provisions of the regulations or any provisions of other regulations or rules. 3.2.1 Public Censure If the QFCRA considers that a person has contravened a relevant requirement it may publish a statement to that effect. For authorised firms and approved individuals, this applies irrespective of whether the person still is an authorised firm or approved individual, or whether they have stopped being an authorised firm or approved individual. 3.2.2 Financial Penalties If the QFCRA considers that a person has contravened a relevant requirement, it may impose a financial penalty of an amount it considers appropriate. The QFCRA may not impose a financial penalty in respect of any matter for which the person has already been sanctioned by the Tribunal. Penalties are payable to the QFCRA unless it determines otherwise. Any penalty that is not paid within the period stipulated by the QFCRA may, on application to the Tribunal, be recovered by the QFCRA as a debt. The QFCRA may publish a statement describing the contravention and the amount of any financial penalty imposed. 23 3.2.3 Appointment of Managers The QFCRA may require the appointment of one or more individuals to act as managers of the business. Any such request needs to be in writing and may include specific terms. These individuals must be noted or approved by the QFCRA. 3.2.4 Undertakings The QFCRA may accept a legally enforceable undertaking from any person which includes undertakings to do, or not do, something. As long as consent is obtained from the QFCRA, these undertakings may be withdrawn or varied at any time by the person. In the event the QFCRA is satisfied, the person who gave the undertaking has been in breach of any of its terms, it may apply to the Tribunal for an order to direct the person to comply with the relevant terms of the undertaking or any other order the Tribunal considers appropriate. 3.2.5 Prohibitions and Restrictions The QFCRA may place the following prohibitions and restrictions on authorised firms or approved individuals: 1. prohibition to enter into certain specified (types of) transactions 2. prohibition to solicit business from certain specified or types of person 3. restriction of a business to include or exclude carrying on business in a specified manner 4. requirement for them to carry on business or conduct themselves in a specified manner. In addition, the QFCRA may prohibit a person from performing a specified function, any function falling within a specified description, or any function at all. All notifications by the QFCRA in this respect have to be given in writing. 3.2.6 Injunctions and Restitution Orders Three different injunctions are available to the QFCRA: 1. An order restraining a contravention of a relevant requirement. The QFCRA can apply to the Tribunal for this injunction if it is satisfied a person will contravene a relevant requirement, or has contravened a relevant requirement and there is reasonable likelihood the contravention will continue or be repeated. 2. An order requiring steps to be taken to remedy the contravention. The QFCRA may apply to the Tribunal for this injunction if they are satisfied a person has contravened a relevant requirement and there are steps which could be taken to remedy the contravention. 24  QFC Law and Financial Services Regulations 3. An order restraining a person from disposing of, or otherwise dealing with, any of their assets. The 1 QFCRA may apply to the Tribunal for this injunction if it is satisfied a person may have contravened a relevant requirement, or has been knowingly concerned in the contravention of a relevant requirement. In the event that profits have accrued to the person as a result of the contravention, or one or more persons have suffered losses or have otherwise been adversely affected as a result, the QFCRA may also apply for an order requiring the person to (re)pay an amount. In establishing the amount to be paid, the QFCRA will take into consideration the profits accrued and/or the extent of losses, or other adverse effects suffered. The QFCRA may introduce rules to allow (specific categories of) persons to apply to the Tribunal for a restitution order, in the event they have suffered losses or damages as a result of the contravention of a relevant requirement. 3.2.7 Appeals In the event the QFCRA exercises any of its disciplinary powers, the person concerned may refer the matter to the Appeal Body within 28 days of the receipt of a decision notice or a longer period as advised in the notice. 3.2.8 Intervention in any Proceedings Where deemed appropriate to meet the regulatory objectives, the QFCRA may intervene as a party in any proceedings before the Tribunal. In these cases, the QFCRA shall have all rights, duties, and liabilities of such party. 3.2.9 Procedural Irregularities Procedural irregularities can occur in relation to references to defects, irregularities, or deficiency of notice or time in the procedure. Whereas the procedure includes the making of a decision, the conduct of a hearing, the giving of a notice and any proceedings (legal or otherwise). In the event a procedural irregularity occurs, this does not automatically invalidate the procedure. Procedures can only be declared invalid by the Tribunal. 25