The Dubai Financial Services Authority (DFSA) has imposed a fine of $1,368,767 (AED 5,023,375) on R.J. O’Brien (MENA) Capital Limited (RJO MENA/the firm) for failing to comply with regulatory requirements, including not having adequate systems and controls.

The fine was reduced from $2,793,403 (AED 10,251,789) because the firm offered the DFSA an “Enforceable Undertaking” to remediate the failings and agreed to settle the matter. RJO MENA also engaged an external compliance expert to assist it in complying with its obligations and to verify that the necessary remediation has been completed.

“Authorised Firms must ensure that they have adequate compliance and other resources to be able to comply with their legal and regulatory obligations,” said Patrick Meaney, Head of Enforcement of the DFSA.

“Compliance is not an incidental cost of doing business, it is a critical function that must be adequately resourced in terms of both number and quality of staff.”

Inadequate compliance resources

RJO MENA is a wholly owned subsidiary of JVMC Holding Corp, a group holding company. It is part of a group of futures brokerage companies (the Group) which operates in the US, UK, EU, Middle East and Asia.

The Group has a futures brokerage and clearing firm, including a full clearing member of the Chicago Mercantile Exchange.

Following an investigation, the DFSA found that between July 1, 2020 and November 20, 2022, RJO MENA did not undertake sufficient planning and analysis to ensure it could comply with its ongoing regulatory obligations after acquiring an additional brokerage.

RJO MENA failed to:

• ensure it maintained proper records of electronic communications relating to transactions;
• monitor the trading of its trading desks to ensure compliance with ICE Europe and ICE USA rules relating to block trading and the reporting of block trades; and
• ensure compliance with the DFSA’s client onboarding rules.

Also, the firm’s senior management were aware of the lack of compliance resources and failed to adequately address it to ensure that the compliance function was able to fulfil its regulatory obligations.

However, the DFSA also did not find any evidence that the firm acted deliberately to contravene DFSA administered laws and Rules.

Rob Mason, Global Relay’s Head of Regulatory Intelligence, acknowledging the finance sector’s $2.5 billion communications compliance crisis in the US and UK, told us: “While a different jurisdiction, this is another case of prolific incomplete recordkeeping and monitoring failures, in particular, maintenance of proper records of communications relating to transactions.

“This issue remains critical for stakeholder protection, in order to attract appropriate investors to trade in a region where financial services are desperate to compete. This is a positive step for regulators in the region.”

Enforceable Undertaking

RJO MENA has also provided the DFSA with an Enforceable Undertaking in which the firm agrees to:

• remedy the deficiencies in its systems and controls and compliance resources; and
• engage an external compliance expert to assist the firm in complying with its obligations and to verify that the necessary remediation has been completed.

The DFSA has been clamping down on regulatory non-compliance as part of efforts to maintain confidence and financial stability in the financial services industry in the Dubai International Financial Centre. In its 2023/2024 Business Plan, the DFSA reiterated its aspirations to be an internationally respected, strong, and fair regulator. With appointments such as the current Managing Director of Enforcement, Patrick Meaney – previously Wholesale Enforcement Department at the FCA – the Dubai regulator is showing its commitment to regulatory enforcement.

“Compliance is not an incidental cost of doing business, it is a critical function.”

Patrick Meaney, Head of Enforcement, DFSA

Mason sees Meaney’s appointment as evidence of regulator alignment, saying: “Perhaps in itself, middle eastern financial competent authorities are recruiting from other more experienced regulators, to gain traction and be seen to align more closely with those counterparts.”

Matthew Banham, partner at Dechert said: “As the DIFC continues to grow, firms should expect the DFSA to continue its development into a more assertive, adaptive, and innovative compliance regulator and enforcement authority.”