DFSA Consultation Paper No. 165: Proposed Changes to Licensed Functions and Authorised Individuals

The Dubai Financial Services Authority (DFSA) has released Consultation Paper No. 165, outlining proposed changes to its approach regarding Licensed Functions and Authorised Individuals. The DFSA, as the regulator of the Dubai International Financial Centre (DIFC), mandates that Authorised Firms take responsibility for appointing and ensuring the ongoing suitability and competence of their staff.

Current Regulatory Approach:

Individuals authorised by the DFSA to perform Licensed Functions are referred to as Authorised Individuals. The DFSA currently identifies eight Licensed Functions:

1) Senior Executive Officer (SEO)
2) Licensed Director
3) Licensed Partner
4) Finance Officer
5) Senior Manager
6) Money Laundering Reporting Officer (MLRO)
7) Compliance Officer
8) Responsible Officer

GEN Rule 7.5 stipulates that four functions must be held by an Authorised Individual:

1) Senior Executive Officer (SEO)
2) Finance Officer
3) Money Laundering Reporting Officer (MLRO)
4) Compliance Officer

Authorised Firms must conduct due diligence on individuals applying for Licensed Functions to ensure their fitness and propriety. They must not submit applications if there is reason to believe an individual is unsuitable for the position.

Proposed Regulatory Changes:

The DFSA is introducing Designated Functions and Designated Individuals to ensure that Authorised Firms take full responsibility for appointing suitable individuals. Compliance Officers, Finance Officers, and Senior Managers will no longer require DFSA approval, and these roles will no longer be Licensed Functions. Instead, firms will assess candidates internally and ensure they meet the required standards.

• The SEO and MLRO roles will remain Licensed Functions requiring DFSA authorisation.
• Compliance Officer and Finance Officer roles will remain mandatory but as Designated Functions.
• The same assessment criteria for Licensed Functions will apply to Designated Functions.
• Authorised Firms must maintain records demonstrating the fitness and propriety of Designated Individuals.
• Notifications to the DFSA will be required within seven calendar days of the appointment or removal of a Designated Individual, including the reasons for any termination.
• Firms must attest annually that Designated Individuals remain fit and proper.

Role Combinations and Prohibitions:

Certain role combinations will remain restricted. For example, an individual cannot simultaneously serve as both SEO and Compliance Officer. This restriction will extend to Designated Functions. Firms must ensure that individuals performing multiple functions have the necessary competence and capacity.

Additional Proposed Amendments:

• Finance Officers, Senior Managers, and Compliance Officers will be classified as Designated Functions.
• Finance Officers may become non-mandatory for Lower Prudential Risk Firms.
• Senior Managers will be defined as individuals responsible for management, supervision, or control of an Authorised Firm’s financial services, provided they do not already hold another Licensed or Designated Function.
• The requirement for a Compliance Officer to be a Director or Partner will be removed, aligning with the removal of Compliance Officers as Licensed Functions.
• The Principles for Authorised Individuals will be renamed Conduct Principles, with minor amendments, and applied to all employees involved in financial services.
• Compliance Officers, Finance Officers, and Senior Managers will be removed from the public register, which will instead list Designated Individuals.

Implementation Timeline:

The proposed changes will come into force on 1 September 2025. This will result in the following key transitions:

1. All existing Compliance Officers, Finance Officers, and Senior Managers classified as Licensed Functions and Authorised Individuals will automatically transition to Designated Functions and Designated Individuals unless the DFSA is notified of changes.
2. New appointments to these roles will no longer require DFSA authorisation.
3. Authorised Firms will be required to notify the DFSA of any changes in appointments and attest to the fitness and propriety of these individuals in their annual reporting.