3. 3. Minimum Criteria for Authorisation
Track Record — The applicant should demonstrate that it or its Group has a minimum 5-year proven track record in the investment management or related business, in a jurisdiction which has a regulatory framework that is comparable to ADGM. The applicant or its parent / related entities, where applicable, should be subject to proper supervision by a competent regulatory authority.
To be a Retail Manager, the applicant should have a total Group AUM of at least US$1 billion.
Where the applicant does not satisfy the 5-year track record requirement, the Regulator may take into account the (i) track record of the applicant's Controllers/substantial shareholders; and (ii) experience and qualifications of the applicant's key management staff, when assessing the application. In the case of a Start-up entity, the applicant should demonstrate that it has an effective resolution mechanism in the event of any shareholder dispute.
Competency of Key Individuals — A Manager should ensure that the minimum competency criteria, set out in Appendix 1, are met.
Capital Requirements — As set out in section 3 of the PRU Rulebook, a Manager must satisfy a Base Capital Requirement or Expenditure-Based Capital Minimum, whichever is higher.
The table below sets out the Base Capital Requirement for the different categories of Managers.
Regulated Activity Base Capital Requirement Managing Assets US$250,000 Managing a Public Fund US$150,000 Managing an Exempt Fund or Qualified Investment Fund US$50,000
The applicant should make a reasonable assessment of the amount of additional capital buffer it needs, bearing in mind the scale and scope of its operations.
Use of shareholders' loans to meet Capital Requirements. Under current rules, the Capital Requirement of a Manager can only be met by certain forms of capital instruments. Recognising that Managers in general have relatively simple capital structures, the Regulator may consider granting a waiver to allow Managers who do not hold client money to use shareholders' loans as eligible capital resources to meet Capital Requirement exceeding the BCR, subject to appropriate ring-fencing conditions.
Compliance Arrangements — A Manager shall have in place compliance arrangements that are appropriate to the nature, scale and complexity of its business. The minimum criteria in respect of compliance arrangements are set out in Appendix 2. While compliance support may be provided by a related entity and/or third party service providers, the ultimate responsibility for compliance with applicable laws and regulations lies with the Manager's Senior Executive Officer ("SEO") and Board of Directors.
Risk Management — The risk management function should be subject to adequate oversight by the SEO and Board of the Manager. It should be segregated from and independent of the investment management function. The Manager should have policies and procedures to ensure that management is kept informed of the risk exposures in a regular and timely basis. Staff of the risk management function should have adequate knowledge and expertise in risk management.
Internal Audit — The internal audit arrangements should be appropriate to the scale, nature and complexity of its operations. The internal audit may be conducted by the internal audit function within the Manager, an internal audit team from the head office of the Manager, or outsourced to a third party service provider, as set out in Appendix 3.
Independent Custody — A Manager should ensure that assets under management are subject to independent custody3. The independent custodians should be suitably authorised in their respective jurisdictions.
3 Unless otherwise provided in the Rules.
Valuation & Reporting — A Manager should ensure that assets under management are subject to independent valuation and customer reporting. The Manager may have:(a) a third party service provider, such as a fund administrator or custodian, perform the valuation; or(b)an in-house asset valuation function4 that is segregated from the investment management function. Such arrangements may be adopted within larger financial services groups where there are sufficient resources and internal controls to provide for effective segregation of both functions.
The annual audit performed by the independent auditor is intended to serve as a periodic check on the valuation of the assets. Taken on its own, the annual audit will not fulfil the requirement for independent valuation.
4 Unless otherwise required in the Rules, e.g. Fund Managers of Property Funds pursuant to the FUNDS Rulebook.
Professional Indemnity Insurance ["PII"] — As set out in section 6.12 of the PRU Rulebook, a Manager shall maintain PII cover appropriate to the nature, size, and risk profile of the Manager's business. A Retail Manager should obtain a minimum PII coverage as set out in Appendix 4. For Restricted and Start-up Managers, we may consider granting a waiver of the requirement under appropriate circumstances acceptable to the Regulator.
Appendix 1 — Minimum Competency Criteria
Start-Up Manager Restricted Manager Retail Manager(i) Number of Licensed Directors:
A Licensed Director is a Controlled Function set out in GEN 5.3.3. Nominee directors such as legal advisers or corporate secretaries will not count towards meeting this requirement.
Of these Directors,• Minimum years of individual relevant experience#:• Number of Directors resident in the U.A.E.
At least 2
At least 1
At least 2*
At least 1
At least 2*
At least 1(ii) Number of Approved Persons residing in the U.A.E:
Approved Persons (as set out in GEN 5.3) will include the Licensed Directors, Licensed Partners and Senior Executive Officer ["SEO"] of the Manager.
Minimum years of relevant experience#:
At least 2
At least 2
At least 3
(10 years for the SEO)(iii) Number of employees / professionals conducting the regulated activities residing in the U.A.E:
Such employees / professionals may include the Approved Persons and Recognised Persons (as set out in GEN 5.4) of the Manager.
At least 2 At least 2 At least 3
#: The relevance of an individual's experience should be assessed in the context of the role that the individual will perform in the Manager. For example, experience in proprietary trading for financial institutions could be counted towards meeting the relevant experience criteria for a relevant professional conducting regulated activities in respect of discretionary portfolio management activities. Relevant experience may also include sector experience (e.g. corporate strategy and management of businesses), particularly for private equity and venture capital Managers. Directors/Partners, SEO and Senior Managers should have managerial experience or experience in a supervisory capacity as part of their relevant experience.
*: For a Manager that is deemed as high impact or systemically important, the Regulator may require the Manager to have more than 2 directors.• The following are examples where the Regulator would consider a Start-up/Restricted Manager as having met the minimum competency criteria:
The Manager has two resident Licensed Directors, one of whom is the SEO, who is responsible for the conduct of investment management activities. The other is the Chief Operating Officer, who is responsible for back office functions such as trade reconciliation and reporting (i.e. not conducting a regulated activity). Both directors have at least 5 years of relevant experience in their respective functions. The Manager will meet the minimum competency criteria if it employs at least one additional resident full-time employee/professional, who will conduct investment management activities. There will not be any minimum experience criteria for this additional employee, although the employee should be suitably competent.
The Manager has two Licensed Directors conducting investment management activities. Both directors are resident in the U.A.E and have at least 5 years of relevant experience in investment management. One of the directors is the SEO. The Manager should appoint another Recognised Person independent of the front office to be the Compliance Officer / Finance Officer / Money Laundering Reporting Officer.
The Manager in ADGM ("ADGM Manager") is a subsidiary of a foreign-based Manager who is regulated in its home jurisdiction. The ADGM Manager has one resident Licensed Director appointed as the SEO, who has 5 years of relevant experience and carries out investment management activities. The ADGM Manager has another director based overseas. The ADGM Manager will meet the criteria if it employs an additional resident full-time employee/professional to conduct the investment management activities, and this employee will be required to have at least five 5 years of relevant experience.
Appendix 2: Minimum Compliance Arrangements
Category Compliance Arrangements Retail Manager• The Manager should put in place an independent and dedicated compliance function in the U.A.E with staff who are suitably qualified and independent from the front office.• Compliance staff may perform other non-conflicting and complementary roles such as that of an in-house legal counsel. Restricted Manager• A Manager should have an independent compliance function with staff who are suitably qualified and independent from the front office.• The Manager may, depending on the size and scale of the business:(i) rely on compliance oversight and support from an independent and dedicated compliance team at its holding company or related entity; or(ii) engage an external service provider to support its compliance arrangements. The Manager should ensure that the service provider is competent and familiar with the regulatory requirements for Managers in ADGM. The service provider should be able to provide meaningful onsite presence at the Manager.In either case, the Manager should designate a senior staff independent from the front office (e.g. COO or CFO) to oversee the compliance arrangement; Start-up Manager• A Start-up Manager should ensure that it has adequate compliance arrangements appropriate to the scale, nature and complexity of its operations. This may take the form of an independent compliance function, compliance support from overseas affiliates and/or use of external service providers that meet the requirements set out above.
Appendix 3 — Internal Audit Arrangements
Category Internal Audit Arrangements Retail Manager• The Manager should have an independent and dedicated internal audit function.• The internal audit function may be undertaken by an internal audit team within the Manager, a group internal audit team from the parent or related company of the Manager, or outsourced to a third party service provider. Restricted Manager• The internal audit function may be undertaken by an internal audit team within the Manager independent from the business functions, a group internal audit team from the parent or related company of the Manager, or outsourced to a third party service provider.• Where the Manager does not have a dedicated internal audit function, the adequacy of the Manager's internal audit arrangements should be assessed against the context of the Manager's overall business scale and control environment i.e. whether there are periodic checks similar to those performed by internal auditors, which are performed by control functions such as risk management and compliance. Start-up Manager• The SEO and Board of the Manager are ultimately responsible for ensuring there are adequate internal controls within the Manager and should take reasonable measures to ensure that the internal controls are complied with.
Appendix 4 — PII Coverage for Retail Managers• PII coverage — A Retail Manager should maintain a PII coverage as follows:
Min PII Remarks 0.15% x AUM
(subject to a cap of
US$15mil)• Copy of PII to be submitted to the Regulator on an annual basis.• Amount of PII deductible should not exceed 20% of the Manager's CET1 Capital.• Alternative PII — The Regulator may consider alternative forms of PII subject to the following conditions:
Type Conditions Group PII• Minimum coverage to be at least 5 times the required quantum under a standalone non-hybrid PII.• If the deductible of the Group PII is greater than 20% of the applicant's base capital, an undertaking from the applicant's parent company to cover the excess in the event of a claim would be required. Hybrid PII• Sub-limits to be set for the non-PII sections of the hybrid PII.• Total coverage under the hybrid PII less the sub-limits for the non-PII sections should be at least equivalent to the required quantum under a standalone non-hybrid PII. Group Hybrid PII• Sub-limits to be set for the non-PII sections of the Group hybrid PII.• Total coverage of the Group hybrid PII less the sub-limits for the non-PII sections has to be at least 5 times the required quantum under a standalone non-hybrid PII.• If the deductible of the Group hybrid PII is greater than 20% of the applicant's base capital, an undertaking from the applicant's parent company to cover the excess in the event of a claim would be required.