Dubai Financial Services fines ARC Capital $504,000

The Dubai Financial Services Authority imposed a fine of $504,000 on Arc Capital Management – Dubai due to its insufficient systems and controls to identify cases of market abuse, and its failure to inform the Dubai Financial Services Authority of a proposed change in control of the company.

Alan Lenning, Director General of the Enforcement Department of the Dubai Financial Services Authority, said that the integrity of financial markets depends on the vigilance of its participants, and the regulated business community bears the responsibility of committing to ensure that cases of market abuse are not facilitated. Therefore, the Dubai Financial Services Authority requires companies to have effective systems to detect potential cases of market abuse, and to immediately report suspicious transactions and orders when they have reasonable grounds to suspect such cases.

The Dubai Financial Services Authority found that although Arc had effective systems to identify trading patterns consistent with cases of market abuse, it did not pay sufficient attention to the alerts provided by those systems, and in some cases did not review them immediately. Therefore, the Dubai Financial Services Authority considers that the company’s systems and controls for identifying cases of market abuse were ineffective, which led to the occurrence of at least ten trading cases that were ignored and were not reported to the Dubai Financial Services Authority or were not reported in a timely manner.

It was also found that Ark had failed to notify the Dubai Financial Services Authority of a proposed change in control, and although that change did not ultimately occur, an agreement was concluded under which an investor would acquire 9.5% of Ark’s shares, with the option to increase that stake to 90% once certain conditions were met.

Ark incorrectly considered that because the initial acquisition of shares was below the 10% threshold that would have required DFSA approval, it was not required to inform the Authority of the proposed change in control.

Lenning added that the relationship between the DFSA and the companies subject to its regulation is based on the principle of transparency, and therefore the Authority expects to be informed of any proposed change in control in those companies, including notification of potential changes in ownership, which is explicitly stated in our rules. Therefore, structuring transactions to avoid the need to obtain authority approval, such as dividing purchases into tranches below specified percentage levels, does not relieve firms of their independent obligation to notify the DFSA of any potential change in control, and this applies in particular where there are agreements in place that set out a course that may lead to a change in ownership of the company.