Frank Kane’s column: I rather wish I had kept quiet on Rule 8.6.3

Reading financial rulebooks in bed at night may seem a cure for insomnia, but then amid all the verbiage, a nugget emerges.

I wrote last November of my favourite method for ensuring a good night’s sleep: a late-night perusal of the general rulebook of the Dubai Financial Services Authority, I suggested, would do it for anybody suffering the pangs of insomnia.

But now I think I’ve found a better cure, even if it is somewhat related. Again it concerns the regulatory watchdog, but this time my favourite night-time tome is the Consultation Paper Number 91, published on the 16th of last month and entitled “Proposed Enhancements to the Auditor Regime”.

This slim volume is an entirely laudable effort by the DFSA to learn the lessons of the past five years, and to bring its auditing capabilities up to speed to handle the changes in financial markets practice over that period.

When you think of the dramatic transformation that the world, let alone Dubai and the Dubai International Financial Centre (DIFC), has been through in the past half- decade, you would expect nothing else than that the authorities would want to consult with registered firms on how best to organise the financial system to reflect on these changes.

So, it’s a worthy and serious publication, but the nature of the matters it deals with do not make it an easy read. Take this typical paragraph as an example:

“It is proposed that an application to withdraw an Audit Principal’s registration may be made by the Registered Auditor or Audit Principal. For the DFSA to grant such a request, it must be satisfied that the Registered Auditor would continue to have at least one individual appointed by it to undertake the responsibilities of an Audit Principal and that the Registered Auditor has made appropriate arrangements with existing audit clients which are Relevant Persons (Domestic Firms, Domestic Funds and PLCs) (see AUD section 3.3).”

Not exactly riveting stuff, is it?

So there I was, snuggled up in bed at home, wading through this. My eyelids were starting to feel heavy, my head began to nod, when I came across the sections headed “Disclosure of Financial Statements”. Suddenly, I was bolt upright and wide awake.

Back in November, what grabbed my attention was General Rule 8.6.3, which said: “If requested, an Authorised Person must provide to any Person a copy of its most recent audited accounts, together with the auditor’s report”.

This really was eye-opening. Any individual, myself included, could ask DIFC-registered firms for their figures, and they had to be provided under DFSA regulations. I was surprised back then because while most DIFC firms pay lip service to principles of transparency and disclosure, I have never come across any that took that to the extent of providing sensitive and private financial information to their competitors, especially via a journalist.

I approached several firms with a request to see their figures, as required under 8.6.3, but was fobbed off with a variety of excuses: “it’s with the lawyers”, “you have to sign a non-disclosure agreement before you can see them”, and in the case of subsidiaries, “they’re all contained in the global annual report”.

These were just some of the responses I got. Others suggested the DFSA rule was a typing error, or just plainly told me to go away.

Well, my inquiries nonetheless must have prompted some internal fuss at the DIFC, because now, in the new consultation paper, the DFSA is considering an amendment to rule 8.6.3 in so far as it affects most of its member firms.

“The DFSA proposes to change the scope of 8.6.3 so that the requirement to disclose, on request, does not apply to those firms [in certain categories] that never hold client assets or insurance monies.”

There is of course a consultation period for member firms, whose comments are welcome, but I doubt at least that any of the firms I approached – a fair cross-section of DIFC membership – will be arguing against the proposed DFSA amendment to its hitherto progressive disclosure rules.

So in fact, my highlighting the issue seems to have done rather more harm than good. Ah well, back to sleep.