• Chapter 4 Chapter 4 – Enforcement

    • Introduction

      4.1 The purpose of this Chapter is to set out the Registration Authority’s approach to the exercise of its enforcement powers and the considerations that it applies.
      4.2 The Registration Authority has several remedies available to it, in order to achieve its objectives. This includes, the imposition of fines, the imposition of limits or restrictions on a licence, and suspending a licence to carry on controlled activities.
      4.3 The Registration Authority will follow the policy and procedures set out in this Manual in relation to the use of enforcement powers. The Registration Authority does not have criminal jurisdiction, hence, should criminal conduct be identified, it will be referred to the relevant law enforcement agency.

    • Fines

      4.4 This section sets out the Registration Authority’s approach in relation to the imposition of fines under section 41 of CLR 2015.
      4.5 Under section 41(1) of CLR 2015, if the Registration Authority considers that a licensed person has contravened a relevant requirement imposed on the person, it may impose on him a fine in respect of the contravention.
      4.6 Under section 41(2) of CLR 2015, if the Registration Authority considers that a person has committed a contravention of an enactment or subordinate legislation, it may impose on him a fine of an amount not exceeding the maximum specified for such contravention in the relevant enactment or subordinate legislation.

      • Purpose of fines

        4.7 The purpose of imposing fines on persons is to promote compliance with the Regulations and achieve the Registration Authority’s objectives by:
        a. penalising persons who have committed contraventions;
        b. deterring persons that have committed or may commit similar contraventions; and
        c. depriving persons of any benefit they may have gained as a result of their contraventions.

      • Determining the appropriate amount of a fine

        4.8 Under section 45(2) of CLR 2015, to determine the amount of a fine to be imposed under section 41, the Registration Authority must have regard to the following factors:
        a. the seriousness of the contravention in question in relation to the nature of the relevant requirement or provision of the Regulations contravened;
        b. the extent to which the contravention was deliberate or reckless; and
        c. whether the licensed person against whom action is to be taken is an individual.
        4.9 In addition to having regard to the factors in paragraph 4.8 above, where the Registration Authority decides that a fine is appropriate, further considerations may also be relevant to determining the amount of that fine. The following paragraphs set out a non-exhaustive list of factors and considerations that the Registration Authority will consider to determine the amount of fines.

      • Seriousness

        4.10 The Registration Authority has regard to the seriousness of the contravention in relation to the nature of the requirement contravened. In considering the seriousness of the contravention, the following list of factors may be relevant:
        a. the duration and frequency of, and the period that has elapsed since, the contravention;
        b. if the person is (or was) a licensed person – whether the contravention happened because:
        i. of weak corporate governance arrangements;
        ii. of absent or weak policies and procedures regarding relevant licence conditions and/or requirements; or
        iii. inadequate resources (including staffing);
        c. if the person is (or was) a licensed person and the firm’s shareholders, officers or senior management were aware of the contravention – whether they took any steps to stop or prevent the contravention, the adequacy of any steps and when the steps were taken;
        d. the effect or potential effect of the contravention on the following:
        i. the integrity, transparency and efficiency of the ADGM; and
        ii. confidence in the ADGM by participants and potential participants of the ADGM; and
        iii. the reputation of the ADGM;
        e. any loss or risk of loss caused to clients, customers and other affected people;
        f. whether the contravention had an effect on particularly vulnerable people, whether intentionally or otherwise;
        g. the scope for any potential financial crime to be caused or facilitated by the contravention; and
        h. whether publically available guidance or published materials raised concerns about the conduct constituting the contravention.

      • Deliberate or reckless

        4.11 The Registration Authority has regard to the extent to which the contravention was deliberate or reckless. If the contravention was deliberate or reckless, the Registration Authority is likely to impose a larger fine on the person than would otherwise be the case.
        4.12 In this regard, the Registration Authority considers the following:
        a. whether the breach was intentional, in that the person concerned intended or foresaw that their actions would or might result in a contravention;
        b. whether the person concerned knew that their actions were not in accordance with internal procedures;
        c. whether any steps were taken in an attempt to conceal the misconduct;
        d. whether the contravention was committed in such a way as to avoid or reduce the risk that the contravention would be discovered;
        e. whether the decision to commit the contravention was influenced by a belief that it would be difficult to detect;
        f. whether the contravention occurred more than once, and if so, how often; and
        g. whether reasonable professional advice was obtained before or during the contravention and was not followed or responded to appropriately. Obtaining professional advice does not remove a person’s responsibility for compliance with relevant requirements.
        4.13 Factors tending to show that a contravention was reckless include:
        a. the person knowing that there was a risk that their actions or inaction could result in a contravention but failing to mitigate that risk adequately; and
        b. the person knowing that there was a risk that their actions or inaction could result in a contravention but failing to check if they were acting in accordance with relevant internal procedures.

      • Whether the person is an individual

        4.14 The Registration Authority has regard to whether the person on whom the fine is to be imposed is an individual. In determining the amount of a fine to be imposed on an individual, the Registration Authority takes the following into account:
        a. that individuals may not have the resources of a firm;
        b. that enforcement action may have a greater effect on an individual than on a firm; and
        c. that it may be possible to achieve effective deterrence by imposing a smaller penalty on an individual than on a firm.
        4.15 The Registration Authority also considers whether the person’s position or responsibilities are such as to make a contravention committed by the person more serious and whether a larger fine should therefore be imposed.

        • Effect on third parties

          4.16 The Registration Authority has regard to the effect of the contravention on clients, customers or third parties.
          4.17 The Registration Authority considers a contravention to be more serious where it results in a loss, or the risk of loss, to clients, customers or third parties or if it had an effect on particularly vulnerable people, whether intentionally or otherwise.

        • Deterrence

          4.18 The Registration Authority’s policy is that deterrence is one of the main purposes of taking enforcement action. That is, deterring persons who have committed contraventions from committing further contraventions, and deterring others from committing similar contraventions.
          4.19 The Registration Authority has regard to the need to ensure that any fine imposed has the appropriate deterrent effect. In this regard, the Registration Authority considers the extent to which it is necessary to impose a fine of an appropriate amount in order to ensure that the deterrent effect of the action is not diminished.

        • Financial gain or loss avoided

          4.20 To the extent possible, the Registration Authority will seek to deprive a person who commits a contravention of the amount of any benefit gained or loss avoided by that person as a result of their contravention.
          4.21 Accordingly, if the person has made a profit or avoided a loss, the Registration Authority will impose a fine consistent with the principle that a person who commits a contravention should not benefit from the contravention, subject to the prescribed maximum penalty under CLR 2015.
          4.22 Further, in taking into consideration the amount of any financial advantage gained by a person who committed a contravention, the Registration Authority has regard to the need to ensure that the amount of the fine acts as a deterrent to the person (and to others).

        • Subsequent conduct

          4.23 The Registration Authority takes into consideration the conduct of the person after the contravention in determining the amount of the fine, including, for example, the following:
          a. the conduct of the person in bringing (or failing to bring) the contravention quickly, effectively and completely to the attention of the Registration Authority;
          b. the degree of cooperation the person showed during the investigation of the contravention;
          c. any remedial steps the person has taken in relation to the contravention, including whether they were taken on the person’s own initiative or that of the Registration Authority. Remedial steps might include, for example:
          i. correcting any misleading statement or impression;
          ii. recruiting new staff to enhance or increase resources;
          iii. ascertaining whether clients or customers suffered loss and compensating them if they have;
          iv. if appropriate, taking disciplinary action against, or providing additional training for, staff involved in the contravention; and
          v. introducing or improving policies, procedures or systems and controls to reduce the likelihood of the contravention arising in future; and
          d. whether the person has complied with any requirements or decisions of the Registration Authority in relation to the contravention.
          4.24 That the person has fully cooperated in the investigation of the contravention by the Registration Authority is a consideration tending to reduce the amount of the fine.
          4.25 Generally, a licensed person is given recognition for being open and cooperative with the Registration Authority. The assessment of the level of cooperation offered by a person depends on the particular circumstances of the matter. A licensed person can demonstrate cooperation in many ways including, promptly reporting a contravention, taking responsibility for the matter and being open and communicative with the Registration Authority, taking steps to limit damage and being proactive in bringing the matter to an early conclusion.

        • Disciplinary record and compliance history

          4.26 The Registration Authority takes into consideration a person’s disciplinary record and compliance history in determining the amount of the fine, including, for example:
          a. the person’s general compliance history;
          b. whether the Registration Authority has previously taken any disciplinary action resulting in adverse findings against the person;
          c. whether the Registration Authority has previously taken action against the person under sections 13 or 14 of CLR 2015 (own initiative action); and
          d. whether the Registration Authority has previously given the person a notice under section 43 (fines, suspensions and restrictions).
          4.27 The disciplinary record of a person could lead to the Registration Authority imposing a larger fine than otherwise might be appropriate: for example, the fine might be increased if the person has committed similar contraventions in the past or been warned about similar misconduct. In assessing the relevance of the person’s disciplinary record and compliance history, generally the older the contravention is, the less significant it is regarded as being.

        • Maximum penalty

          4.28 The CLR 2015 prescribes the maximum level of financial penalty for contraventions of relevant requirements under the Regulations. The prescribed levels refer to the standard fines scale set out in the Commercial Licensing Regulations 2015 (Fines) Rules 2020. In determining the appropriate amount of a fine, notwithstanding all other considerations, the Registration Authority shall not exceed the prescribed maximum penalty per contravention.

        • Settlement discount

          4.29 In the event that the Registration Authority and the person concerned agree on the action to be taken in a particular case, it is possible that any fine imposed on the person will be reduced to take account of the settlement that has been reached.
          4.30 However, any settlement discount applied relates only to the punitive element of the fine and not to an amount included to deprive the person concerned of any profit made, or loss avoided, as a result of their contravention or to any restitution or compensation payable under the terms of the settlement.

        • Serious financial hardship

          4.31 Where a person claims that payment of a fine proposed by the Registration Authority will cause them serious financial hardship, the Registration Authority will consider whether to reduce the proposed fine based on the following considerations:
          a. the person provides verifiable evidence that payment of the proposed fine would cause them to suffer serious financial hardship; and
          b. the person provides full and timely disclosure of the verifiable evidence and cooperates fully with any enquiries the Registration Authority may make about their financial position.
          4.32 It is the responsibility of the person concerned to satisfy the Registration Authority that payment of the proposed fine would cause them to suffer serious financial hardship. It is not the Registration Authority’s responsibility to establish that the person has the means to pay the proposed fine.
          4.33 However, in some cases, even where a person has demonstrated that a proposed fine would cause serious financial hardship, the Registration Authority may consider the contravention to be so serious that it is not appropriate to reduce the proposed fine.
          4.34 Such circumstances include, providing false or misleading information to the Registration Authority, deliberate and repeated breaches of licensing requirements or where previous action by the Registration Authority has not been successful in bringing about a change in behavior by the person involved.

    • Suspend, Limit or Restrict Licence

      4.35 This section sets out the Registration Authority’s policy in relation to it suspending a licence to carry on a controlled activity or imposing limitations or restrictions in relation to the carrying on of a controlled activity by the person, under section 42 of CLR 2015.
      4.36 Under section 42(1) of CLR 2015, if the Registration Authority considers that a licensed person has contravened a relevant requirement imposed on the person, it may:
      a. suspend, for such period as it considers appropriate, any licence which the person has to carry on a controlled activity; or
      b. impose, for such period as it considers appropriate, such limitations or other restrictions in relation to the carrying on of a controlled activity by the person as it considers appropriate.
      4.37 Section 42(2) of CLR 2015 states that the period for which a suspension or restriction is to have effect may not exceed 12 months.

      • Scope of suspension or restriction

        4.38 Under section 42(3), a suspension may relate only to the carrying on of an activity in specified circumstances.
        4.39 Under section 42(4), a restriction may, in particular, be imposed so as to require the person concerned to take or refrain from taking, specified action.
        4.40 Having regard to the circumstances of the case, the Registration Authority may suspend or restrict a licensed person from carrying on a controlled activity. The Registration Authority considers that suspending a licence to carry on controlled activities is more restrictive and therefore more serious than imposing a restriction or limitation in relation to the carrying on of a controlled activity.
        4.41 Whether the Registration Authority imposes a suspension or restriction will depend on the facts of the matter, such as risk of harm to clients or customers, the need to protect the integrity of the ADGM and to ensure the confidence of its participants.

      • Determining the period for a suspension or restriction

        4.42 Under section 45(2) of CLR 2015, to determine the period for which a suspension or restriction is to have effect, the Registration Authority must have regard to the following factors:
        a. the seriousness of the contravention in question in relation to the nature of the relevant requirement or provision of the Regulations contravened;
        b. the extent to which the contravention was deliberate or reckless; and
        c. whether the licensed person against whom action is to be taken is an individual.
        4.43 In this regard, the considerations that the Registration Authority will consider are set out in paragraphs 4.10 to 4.27 (above).

      • Suspensions, restrictions and other action

        4.44 In appropriate cases, the Registration Authority may take other action against a person such as imposing a fine, in addition to imposing a suspension or restriction in relation to the same contravention.