5. 5. Ongoing Requirements For PFP Operations
Upon authorisation, a PFP Operator, as a holder of an FSP, must comply at all times with the relevant requirements in FSMR and the FSRA Rulebooks, including GEN, COBS, PRU and AML.
The principal conduct rules that apply to PFP Operators are set out in COBS Chapter 18, and are outlined below:(a) Risk WarningA PFP Operator must publish a prominent risk warning on the PFP which identifies the risks involved in participating in a PFP Transaction. As a minimum the risk warning should address the risks set out in section 2.3 of this Guidance.Prior to registering a Client to access the PFP, a PFP Operator must obtain their acknowledgement that they fully understand the risks set out in the risk warning.(b) Due DiligenceThe PFP Operator is required to undertake appropriate and proportionate due diligence on a PFP Prospect covering the matters set out in COBS Section 18.4, as a minimum. Where reasonable and prudent, the due diligence review of a PFP Prospect may require independent verification.A PFP Operator is not required to disclose its due diligence assessments to clients, although it may choose to do so. However, it is required to disclose and explain in a clear way its selection and acceptance criteria for a PFP Transaction to be offered on its platform. It must also disclose its due diligence methodology for each of its criterion including where the due diligence is undertaken by a third party.A PFP Operator must keep records of the due diligence undertaken on all PFP Prospects for the FSRA’s review.A PFP Operator must also form a reasonable basis for believing that the PFP Prospect has adequately set out relevant information regarding its proposal in a clear, fair and not misleading manner for clients to make an informed decision including, but not limited to:(i) general information about the PFP Prospect including details of its incorporation, commercial licence, directorships, major shareholders, beneficial holders;(ii) the business proposal and business model;(iii) financial information about the PFP Prospect;(iv) criteria by which the PFP Transaction would be regarded as being in default;(v) a wind-down plan, including information on the return of Client Assets, in the event of business default/failure of the PFP Prospect;(vi) features, structures, and subscription classes of the PFP Transaction;(vii) basis of subscription class and allotment to each client;(viii) treatment, voting / contractual rights and claims of clients of the PFP Transaction in any particular subscription class;(ix) pricing and valuation basis of the PFP Transaction;(x) risks specific to the PFP Prospect and PFP Transaction;(xi) parties involved in the PFP Transaction and any conflicts of interest, including any financial or other interests that the PFP Operator, its key officers, Employees and Associates have in the PFP Prospect or PFP Transaction;(xii) procedures and obligations for clients in any administrative / corporate actions;(xiii) whether the PFP Prospect is seeking funding from other sources at the same time;(xiv) intended use of funds;(xv) treatment of oversubscriptions and maximum amount accepted, if applicable;(xvi) any cancellation rights;(xvii) format / frequency of performance reporting to clients; and(xviii) format / frequency of ongoing disclosure of applicable information in relation to the PFP Transaction and PFP Prospect.Any material changes to the information disclosed in the proposal to clients must be updated and notified to clients within a reasonable timeframe and at least ten business days prior to closing of the PFP Transaction.(c) Forums / Message BoardsA PFP Operator is not required to comply with the above disclosure requirements where it is merely gauging the interest of clients on a potential PFP Transaction where the related start-up or SME is not identified.In such instances, the PFP Operator should monitor the forum or message board used to gauge client interest to remove any potentially misleading or fraudulent posts.(d) MarketingAs access to PFPs is restricted to registered clients only, mass solicitation, advertising or canvassing is not permitted.However, a PFP Operator may promote its platform to the general public. Such communication may include general information about the PFP Operator, its business model, performance and the PFP Prospects accepted on its platform. Such communication must not include any information on specific offers, research or recommendations relating to a PFP Prospect or a PFP transaction.(e) DisclosureA PFP Operator must disclose the following information to its clients, either in written form or electronically through the PFP, to enable them to make an informed decision on whether to participate in a transaction on the PFP:(i) how the PFP operates (e.g. whether it offers loan or investment based financing opportunities, the process for participating in a financing opportunity; how Client Assets are held, how transactions through the PFP may be structured);(ii) the PFP Operator’s remuneration model (e.g. whether the PFP Operator is remunerated entirely by PFP Prospects by a percentage of funds raised or on a transaction basis by its clients);(iii) the PFP Operator’s roles and obligations (including to clients in any administrative / corporate actions in relation to the PFP Transactions). Where the PFP Operator and clients relationship is non-advisory in nature, the PFP Operator must clearly disclose the fact and that the information presented does not constitute personal advice or a recommendation);(iv) the recourse available to clients in the event of the failure of the PFP Operator or the PFP Prospect;(v) in the event that there is a material adverse change in the circumstances of PFP Transaction or the PFP Prospect defaults, the PFP Operator’s roles and obligations, including any arrangements in relation to the recovery of the Client Assets; and(vi) the general disclosure obligations set out in COBS (e.g. where applicable, the client agreement content in Rule 3.3.2 and potential conflicts of interest in Rule 3.5.4).(f) Exit FacilityA PFP Operator may offer an incidental facility (termed an “Exit Facility”) to permit clients to exit their PFP transactions by allowing them to seek potential “buyers” who are also clients of the PFP Operator in order to transfer their rights and obligations under their loan or investment agreements.The Exit Facility should not allow active trading by clients and should be solely an ancillary service provided by the PFP Operator. The Exit Facility must comply with the requirements set out in COBS Section 18.8. In particular, the PFP Operator should not be remunerated for any transaction made through this facility nor should it provide advice to or make arrangements on behalf of clients using this facility.Where an Exit Facility exhibits characteristics of a trading facility, the PFP Operator may require a separate FSP for Operating a Multilateral Trading Facility or Operating an Organised Trading Facility2.Any investment-based offer made through the Exit Facility must continue to comply with the Exempt Offer criteria set out in Appendix A of this Guidance.(g) Intermediate entitiesWhere a PFP Operator structures a PFP Transaction using a special purpose vehicle, that vehicle must be incorporated in the ADGM to ensure the ease of administration and greater regulatory oversight in the event of the failure of the PFP Operator.
A PFP Operator will also need to consider the applicability of other ADGM Regulations including, but not limited to, the Companies Regulations 2015, Insolvency Regulations 2015, Data Protection Regulations 2015 and the Common Reporting Standard Regulations 2017; as well as other international regulations including the Foreign Account Tax Compliance Act.
Chapter 3 of the GPM sets out in detail the FSRA’s risk-based approach to the supervision of Authorised Persons.