• MIR 2.5 MIR 2.5 Systems, controls and conflicts

    • MIR 2.5.1

      The Recognised Body must ensure that the systems and controls used in the performance of its relevant functions are adequate, and appropriate for the scale and nature of its business. This applies in particular to systems and controls concerning:

      (a) the transmission of information;
      (b) the assessment, mitigation and management of risks to the performance of the Recognised Body's relevant functions, including conflicts of interest;
      (c) the effecting and monitoring of transactions on the Recognised Body;
      (d) the technical operation of the Recognised Body, including contingency arrangements for disruption to its facilities;
      (e) the operation of its functions relating to the safeguards and protections to investors;
      (f) (where relevant) the safeguarding and administration of assets belonging to users of the Recognised Body's facilities; and
      (g) outsourcing.

    • MIR 2.5.2

      In assessing whether the systems and controls used by a Recognised Body in the performance of its relevant functions are adequate and appropriate for the scale and nature of its business, the Regulator may have regard to the Recognised Body's:

      (a) arrangements for managing, controlling and carrying out its relevant functions, including:
      (i) the distribution of duties and responsibilities among its Key Individuals and the departments of the Recognised Body responsible for performing its relevant functions;
      (ii) the staffing and resources of the departments of the Recognised Body responsible for performing its relevant functions;
      (iii) the arrangements made to enable Key Individuals to supervise the departments for which they are responsible;
      (iv) the arrangements for appointing and supervising the performance of Key Individuals (and their departments); and
      (v) the arrangements by which the governing body is able to keep the allocation of responsibilities between, and the appointment, supervision and remuneration of, Key Individuals under review;
      (b) arrangements for the identification and management of conflicts of interest;
      (c) arrangements for internal and external audit; and
      (d) information technology systems.

    • General safeguards for investors

      • MIR 2.5.3

        A Recognised Body must have rules, procedures and appropriate surveillance to ensure that its facilities are such as to afford proper protection to investors. The Regulator may have regard to the extent to which the Recognised Body's rules, procedures and arrangements for monitoring and overseeing the use of its facilities:

        (a) include appropriate measures to prevent the use of its facilities for abusive or improper purposes;
        (b) provide appropriate safeguards for investors against fraud or misconduct, recklessness, negligence or incompetence by users of its facilities;
        (c) provide appropriate information to enable users of its facilities to monitor their use of the facilities;
        (d) include appropriate arrangements to enable users of its facilities to raise queries about any use of those facilities which they are reported to have made;
        (e) include appropriate arrangements to enable users of its facilities to comply with any relevant regulatory or legal requirements; and
        (f) include appropriate arrangements to reduce the risk that those facilities will be used in ways which are incompatible with relevant regulatory or legal requirements,

        and in this paragraph "appropriate" should be taken to mean appropriate having regard to the nature and scale of the Recognised Body's facilities, the types of Persons who will use the facilities and the use which they will make of those facilities.

      • MIR 2.5.4

        A Recognised Body must be able and willing to promote and maintain high standards of integrity and fair dealing in the carrying on of business on or through its facilities. The Regulator may have regard to the extent to which the Recognised Body seeks to promote and encourage, through its rules, practices and procedures, conduct in Regulated Activities which is consistent with the Code of Market Conduct and with any other codes of conduct, rules or principles relating to behaviour in Regulated Activities which users of the Abu Dhabi Global Market financial system would normally expect to apply to the Regulated Activity and the conduct in question.

      • MIR 2.5.5

        A Recognised Body must be able and willing to cooperate, by the sharing of information or otherwise, with the Regulator, with any other authority, body or Person having responsibility in the Abu Dhabi Global Market for the supervision or regulation of any Regulated Activity or other financial service, or with a Non-Abu Dhabi Global Market regulator. The Regulator may have regard to the extent to which the constitution and rules of the Recognised Body and its agreements with its Members enable it to obtain information from Members and to disclose otherwise confidential information to the Regulator and other appropriate bodies, including:

        (a) the extent to which the Recognised Body is willing to provide information about it and its activities to assist the Regulator in the exercise of its functions;
        (b) the extent to which the Recognised Body is open with the Regulator or other appropriate bodies in regulatory matters;
        (c) how diligently the Recognised Body investigates or pursues enquiries from the Regulator or other appropriate bodies; and
        (d) whether the Recognised Body participates in appropriate international fora.

      • MIR 2.5.6

        For the purpose of this section, "information" includes information held about large positions held by Members of a Recognised Body.

    • Conflicts of interest

      • Guidance

        A conflict of interest arises in a situation where a Person with responsibility to act in the interests of one Person may be influenced in his action by an interest or association of his own, whether Personal or business or employment related. Conflicts of interest can arise both for the Employees of Recognised Bodies and for the members (or other Persons) who may be involved in the decision‐making process, for example where they belong to committees or to the Governing Body. Conflicts of interest may also arise for the Recognised Body itself as a result of its connection with another Person.

        The Regulator recognises that a Recognised Body has legitimate interests of its own and that its general business policy may properly be influenced by other Persons (such as its owners). Such a connection does not necessarily imply the existence of a conflict of interest nor is it necessary to exclude individuals closely connected with other Persons (for example, those responsible for the stewardship of the owner's interests) from all decision‐making processes in a Recognised Body. However, there may be decisions, primarily regulatory decisions, from which it may be appropriate to exclude an individual in certain circumstances where an interest, position or connection of his conflicts with the interest of the Recognised Body.

      • MIR 2.5.7

        A conflict of interest arises in a situation where a Person with responsibility to act in the interests of one Person may be influenced in his action by an interest or association of his own, whether Personal or business or employment related. Conflicts of interest can arise both for the employees of Recognised Bodies and for the members (or other Persons) who may be involved in the decision-making process, for example where they belong to committees or to the governing body. Conflicts of interest may also arise for the Recognised Body itself as a result of its connection with another Person.

      • MIR 2.5.8

        The Regulator recognises that a Recognised Body has legitimate interests of its own and that its general business policy may properly be influenced by other Persons (such as its owners). Such a connection does not necessarily imply the existence of a conflict of interest nor is it necessary to exclude individuals closely connected with other Persons (for example, those responsible for the stewardship of the owner's interests) from all decision-making processes in a Recognised Body. However, there may be decisions, primarily regulatory decisions, from which it may be appropriate to exclude an individual in certain circumstances where an interest, position or connection of his conflicts with the interest of the Recognised Body.

      • MIR 2.5.9

        The Regulator may have regard to the arrangements a Recognised Body makes to structure itself and to allocate responsibility for decisions so that it can continue to take proper regulatory decisions notwithstanding any conflicts of interest, including:

        (a) the systems and controls intended to ensure that confidential information is only used for proper purposes;
        (b) the size and composition of the governing body and relevant committees;
        (c) the roles and responsibilities of Key Individuals, especially where they also have responsibilities in other organisations;
        (d) the arrangements for transferring decisions or responsibilities to alternates in individual cases; and
        (e) the arrangements made to ensure that individuals who may have a permanent conflict of interest in certain circumstances are excluded from the process of taking decisions (or receiving information) about matters in which that conflict of interest would be relevant.

      • MIR 2.5.10

        The Regulator may also have regard to the contracts of employment, staff rules, letters of appointment for members of the governing body, members of relevant committees and other Key Individuals and other guidance given to individuals on handling conflicts of interest. Guidance to individuals may need to cover:

        (a) the need for prompt disclosure of a conflict of interest to enable others, who are not affected by the conflict, to assist in deciding how it should be managed;
        (b) the circumstances in which a general disclosure of conflicts of interest in advance of any particular instance in which a conflict of interest arises may be sufficient;
        (c) the circumstances in which a general advance disclosure may not be adequate;
        (d) the circumstances in which it would be appropriate for a conflicted individual to withdraw from involvement in the matter concerned, without disclosing the interest; and
        (e) the circumstances in which safeguards in addition to disclosure would be required, such as the withdrawal of the individual from the decision-making process, or from access to relevant information.

      • MIR 2.5.11

        The Regulator may also have regard to the arrangements made:

        (a) for enforcing rules or other provisions applicable to staff and other Persons involved in regulatory decisions; and
        (b) to keep records of disclosures of conflicts of interest and the steps taken to handle them.

      • MIR 2.5.12

        A Recognised Body must ensure that appropriate arrangements are made to:

        (a) identify conflicts between the interests of the Recognised Body, its shareholders, owners and operators and the interests of the Persons who make use of its facilities or the interests of the facilities operated by it; and
        (b) manage or disclose such conflicts so as to avoid adverse consequences for the sound functioning and operation of the facilities operated by the Recognised Body and for the Persons who make use of its facilities.

      • MIR 2.5.13

        A Recognised Body must establish and maintain adequate policies and procedures to ensure that its employees do not undertake Personal account transactions in investments in a manner that creates or has the potential to create conflicts of interest.

      • MIR 2.5.14

        A Recognised Body must establish a code of conduct that sets out the expected standards of behaviour for its employees, including clear procedures for addressing conflicts of interest. Such a code must be:

        (a) binding on employees; and
        (b) to the extent appropriate and practicable, made publicly available.

    • Information transmission

      • MIR 2.5.15

        In assessing a Recognised Body's systems and controls for the transmission of information, the Regulator may also have regard to the extent to which these systems and controls ensure that information is transmitted promptly and accurately:

        (a) within the Recognised Body itself;
        (b) to its Members; and
        (c) (where appropriate) to other market participants or other relevant Persons.

    • Risk management

      • MIR 2.5.16

        In assessing a Recognised Body's systems and controls for assessing and managing risk, the Regulator may also have regard to the extent to which these systems and controls enable the Recognised Body to:

        (a) identify, measure and control all the general, operational, legal and market risks wherever they arise in its activities;
        (b) allocate responsibility for risk management to Persons with appropriate knowledge and expertise; and
        (c) provide sufficient, reliable information to Key Individuals and, where relevant, the governing body of the Recognised Body.

    • Internal and external audit

      • MIR 2.5.17

        A Recognised Body's arrangements for internal and external audit will be an important part of its systems and controls. In assessing the adequacy of these arrangements, the Regulator may have regard to:

        (a) the size, composition and terms of reference of any audit committee of the Recognised Body's governing body;
        (b) the frequency and scope of external audit;
        (c) the provision and scope of internal audit;
        (d) the staffing and resources of the Recognised Body's internal audit department;
        (e) the internal audit department's access to the Recognised Body's records and other relevant information; and
        (f) the position, responsibilities and reporting lines of the internal audit department and its relationship with other departments of the Recognised Body.

    • Information technology systems

      • MIR 2.5.18

        Information technology is likely to be a major component of the systems and controls used by any Recognised Body. In assessing the adequacy of the information technology used by a Recognised Body to perform or support its relevant functions, the Regulator may have regard to:

        (a) the organisation, management and resources of the information technology department within the Recognised Body;
        (b) the arrangements for controlling and documenting the design, development, implementation and use of information technology systems; and
        (c) the performance, capacity and reliability of information technology systems.

      • MIR 2.5.19

        The Regulator may also have regard to the arrangements for maintaining, recording and enforcing technical and operational standards and specifications for information technology systems, including:

        (a) the procedures for the evaluation, selection and testing of information technology systems;
        (b) the procedures for problem management and system change;
        (c) the arrangements to monitor and report system performance, availability and integrity;
        (d) the arrangements (including spare capacity and access to back-up facilities) made to ensure information technology systems are resilient and not prone to failure;
        (e) the arrangements made to ensure business continuity in the event that an information technology system does fail;
        (f) the arrangements made to protect information technology systems from damage, tampering, misuse or unauthorised access; and
        (g) the arrangements made to ensure the integrity of data forming part of, or being processed through, information technology systems.

      • MIR 2.5.20

        The Regulator may have regard to the arrangements made to keep clear and complete audit trails of all uses of information technology systems and to reconcile (where appropriate) the audit trails with equivalent information held by system users and other interested parties.

      • MIR 2.5.21

        In assessing a Recognised Body’s systems and controls for the effecting and monitoring of transactions, and for the operation of settlement arrangements, the Regulator may have regard to the totality of the arrangements and processes through which the Recognised Body’s transactions are effected, cleared and settled, including:

        (a) a Recognised Body’s arrangements under which orders are received and matched, its arrangements for trade and transaction reporting, and (if relevant) its arrangements with another Person under which any rights or liabilities arising from transactions are discharged including arrangements for transmission to a settlement system or Recognised Clearing House;
        (b) (if relevant), a Recognised Body’s arrangements under which instructions relating to a transaction to be cleared by another person by means of a Clearing Service are entered into its systems by the relevant person providing the Clearing Service and transmitted to the Recognised Body; and
        (c) the arrangements made by the Recognised Body for monitoring and reviewing the operation of these systems and controls.

      • Safeguarding and administration of assets

      • MIR 2.5.22

        In assessing a Recognised Body’s systems and controls for the safeguarding and administration of assets belonging to users of its facilities, the Regulator may have regard to the totality of the arrangements and processes by which the Recognised Body:

        (a) records the assets held and the identity of the owners of (and other persons with relevant rights over) those assets;
        (b) records any instructions given in relation to those assets;
        (c) records the carrying out of those instructions;
        (d) records any movement in those assets (or any corporate actions or other events in relation to those assets); and
        (e) reconciles its records of assets held with the records of any custodian or sub‐ custodian (or Person Acting as a Central Securities Depository) used to hold these assets, and with the records of beneficial or legal ownership of those assets.

      • Performance of Regulatory Functions

      • MIR 2.5.23

        A Recognised Body must take all reasonable steps to ensure that the performance of its  Regulatory Functions is not adversely affected by its commercial interests. 

      • MIR 2.5.24

        For  the  purposes  of  Rule  2.5.23,  a  Recognised  Body must  have adequate  systems and  controls, including policies and procedures, to ensure that the pursuit of its commercial  interests (including its profitability) does not adversely impact on the performance of its  Regulatory Functions. 

      • Guidance

        A Recognised Body should have systems for identifying, and drawing to the attention of its Senior Management and Governing Body, situations where its commercial interests conflict, or may potentially conflict, with the proper performance of its Regulatory Functions. This would enable the Recognised Body to take appropriate steps to ensure that such conflicts do not adversely affect the proper performance by the Recognised Body of its Regulatory Functions. In particular, the Recognised Body should ensure that adequate human, financial and other resources (both in terms of quantity and quality) are provided for risk management, regulatory, compliance and other similar functions.