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The Dubai Financial Services Authority has imposed a fine of $504,000 on Arc Capital Management Dubai for inadequate systems and controls to identify market abuse cases. The Dubai Financial Services Authority penalty also addresses the firm’s failure to notify the regulator of a proposed change in control of the company.
According to Allan Lennig, Director General of Enforcement at the Dubai Financial Services Authority, the integrity of financial markets depends on the vigilance of market participants. The regulated business community bears responsibility for ensuring it does not facilitate instances of market abuse, he stated.
Inadequate Market Abuse Detection Systems
The investigation revealed that while Arc Capital Management possessed effective systems to identify trading patterns consistent with market abuse scenarios, the firm failed to give adequate attention to alerts generated by these systems. In several instances, the company did not review warnings promptly, according to the authority’s findings.
As a result, the Dubai Financial Services Authority determined that the company’s systems and controls for identifying market abuse cases were ineffective. This deficiency led to at least ten trading cases being overlooked, with incidents either not reported to the regulator or not reported in a timely manner.
Proposed Change of Control Not Disclosed
Additionally, Arc Capital Management failed to notify the Dubai Financial Services Authority of a proposed change in control. Although the change ultimately did not occur, an agreement had been signed for an investor to acquire 9.5% of Arc’s shares, with an option to increase that stake to 90% once certain conditions were met.
The firm incorrectly assumed that because the initial share acquisition was below the 10% threshold requiring regulatory approval, it was not obligated to inform the authority of the proposed control change. However, this interpretation contradicted regulatory requirements for transparency in ownership matters.
Regulatory Expectations for Market Abuse Prevention
Lennig emphasized that the Dubai Financial Services Authority requires firms to maintain effective systems for detecting potential market abuse cases. Moreover, companies must report suspicious transactions and orders immediately when they have reasonable grounds to suspect such violations.
The relationship between the regulator and supervised firms is built on the principle of transparency, Lennig added. Therefore, the authority expects to be informed of any proposed change in control at these companies, including notifications about potential ownership changes, which is explicitly stated in the rules.
Structuring Transactions to Avoid Oversight
The authority clarified that structuring transactions to avoid the need for regulatory approval, such as dividing purchases into tranches below specified percentage levels, does not exempt firms from their independent obligation to notify regulators. This applies particularly when existing agreements outline a path that could lead to a change in company ownership.
Meanwhile, the case highlights the importance of robust compliance frameworks within financial institutions operating in Dubai’s financial center. The regulatory action serves as a reminder to market participants about their obligations regarding market surveillance and corporate control notifications.
The enforcement action has been finalized with the $504,000 penalty imposed on Arc Capital Management. The Dubai Financial Services Authority has not indicated whether additional monitoring measures will be required, though firms are expected to strengthen their compliance systems following this precedent.
