• 2.5 2.5 Start-up entities in the ADGM

    • What are "Start-up" entities?

      • 2.5.1

        This paragraph serves as a guide to assist Start-up entities that are interested in applying for a Financial Services Permission to conduct Regulated Activities in the ADGM. It sets out the information required to support an application and what criteria that we may consider in the authorisation process. Start-ups, as with any applicants, will be required to satisfy all of our requirements prior to being granted a Financial Services Permission.

      • 2.5.2

        A Start-up entity is:

        (a) any newly set up business entity which is not part of a group that is subject to financial services regulation; or
        (b) part of an existing business entity which it, or whose group is not subject to financial services regulation.

      • 2.5.3

        As a general position, we will not usually accept applications for start-up banks or insurers however each application will be considered on its merits. We will take into account such factors as the applicant's financial position, systems and controls and whether the Start-up entity is managed by persons who have the necessary expertise and knowledge to conduct such activities.

    • Our risk-based approach to Start-ups

      • 2.5.4

        Any consideration of an application for the granting of a Financial Services Permission to carry on a regulated activity is likely to involve an assessment of the risks posed to our objectives by the proposed regulated activity. Whilst the broad categories of risks for all applicants will be the same, the nature of those risks within start-ups can be amplified, as a start-up does not have a regulatory track record to deal with risks and upon which we may place reliance. In the case of a new business, even where senior management has substantial experience and relevant competence in the business sector, this does not necessarily imply an ability to create and sustain an adequate management control environment and compliance culture, particularly when faced with all the other issues of establishing a new business.

      • 2.5.5

        The broad categories of risk and some of the unique elements of those risk categories that apply to start-ups include financial risk, governance risk, business/operational risk and compliance risk.

    • Financial risk

      • 2.5.6

        All applicants are required to demonstrate they have a sound initial capital base and funding and must be able to meet the relevant prudential requirements of the ADGM laws, on an on-going basis. This includes holding enough capital resources to cover expenses even if expected revenue takes time to materialise. Start-ups can encounter greater financial risks as they seek to establish and grow a new business.

      • 2.5.7

        In addition to the risks associated with the financial viability of the start-up, particular attention may be given to the clarity and the verifiable source of the initial capital funding.

    • Governance risk

      • 2.5.8

        All applicants are required to demonstrate robust governance arrangements together with the fitness and integrity of all controllers, directors and senior management. We are aware that management control, in smaller start-ups especially, may lie with one or two dominant individuals who may also be amongst the owners of the firm. In such circumstances, we would expect the key business and control functions (i.e. risk management, compliance and internal audit) to be subject to appropriate oversight arrangements which reflect the size and complexity of the business. Applicants can assist us by describing in detail the ownership structure, high level controls and clear reporting lines which demonstrate an adequate segregation of duties.

      • 2.5.9

        We may request details of the background, history and ownership of the start-up and, where applicable, its Group. Similar details relating to the background, history and other interests of the directors of the start-up may also be required. Where it considers it necessary to do so, we may undertake independent background checks on such material. A higher degree of due diligence will apply to individuals involved in a start-up and there would be an expectation that the start-up itself will have conducted detailed background checks, which may then be verified by us.

    • Business/operational risk

      • 2.5.10

        All applicants are required to establish appropriate systems and controls to demonstrate that the affairs of the firm are managed and controlled effectively. The nature of the systems and controls may depend on the nature, size and complexity of the business. A start-up may wish to consider which additional systems and controls may be appropriate in the initial period of operation following launch, such as increased risk or compliance monitoring. Due to the unproven track record of a startup, we may, for example, impose restrictions on the business activities of the entity or a greater degree and intensity of supervision until such a track record is established.

    • Compliance risk

      • 2.5.11

        The Senior Executive Officer of a firm is expected to take full responsibility for ensuring compliance with the ADGM laws by establishing a strong compliance culture which is fully embedded within the organisation. A start-up will be required to appoint a U.A.E. resident as the senior executive officer as well as the compliance officer and money laundering reporting officer (MLRO) with the requisite skills and relevant experience in compliance and anti-money laundering duties. The individuals fulfilling the compliance and MLRO roles will be expected to demonstrate to us their competence to perform the proposed roles and adequate knowledge of the relevant sections of the ADGM laws and, in the case of the MLRO, the wider anti-money laundering laws.

    • Main information requirements

      • 2.5.12

        The main information requirements are the same for all applicants, including startups, and each application will be assessed on its own merits.

      • 2.5.13

        A key document will be the regulatory business plan submitted in support of the application. It will facilitate the application process if applicants cover the following areas within this submission:

        (a) an introduction and background;
        (b) strategy and rationale for establishing in the ADGM;
        (c) organisational structure;
        (d) management structure;
        (e) proposed resources;
        (f) high level controls;
        (g) risk management;
        (h) operational controls;
        (i) systems overview;
        (j) how the proposed activities are mapped against the Regulated Activities and why particular Regulated Activities are applied for; and
        (k) financial projections.

      • 2.5.14

        Start-up applicants may find it useful to include diagrams illustrating corporate structures, and, where applicable, group relationships, governance arrangements, organisational design, clear reporting lines, business process flows and systems environments.

      • 2.5.15

        Comprehensively addressing these areas and detailing how the key risks will be identified, monitored and controlled may significantly assist us in determining applications from a start-up.