DFSA introduces Fixed Penalty Regime

The FPN regime is found in a new Chapter 14 to the DFSA’s General Rulebook Module. This contains the regulatory reporting requirements which are subject to the FPN scheme, including those to be submitted by Authorised Firms and Auditors under the relevant DFSA Rules.

Under the new regime, if the DFSA reasonably believes that a person has failed to comply with its regulatory reporting requirements it can now issue a FPN. This is a change from the previous position which required the DFSA to commence enforcement proceedings to deal with late filings of regulatory returns, resulting in protracted proceedings and arguably a disproportionate public censure or fine.

The FPN is a written notice containing details of the alleged contravention and the size of the penalty (not fine) to be paid within 14 days. The penalty payable under a FPN is to be tiered, ranging from $2,500 for the first contravention, to $15,000 for a third or more contravention in any single calendar year. A separate penalty will apply to each contravention up to a maximum of $50,000. If the penalty is paid within the 14-day period then the DFSA will take no further action, including no public censure or fine.

There is no mechanism under the new rules to appeal the FPN, and failure to pay the penalty within the 14-day period (or at all) may result in the DFSA engaging its enforcement powers and ultimately issuing a public censure or a fine under Article 90(2)(a) or (b) of the Regulatory Law 2004.

Therefore, the recipient of a FPN will only have an opportunity to make representations to the DFSA about the FPN as part of enforcement proceedings for failure to pay the FPN. Any subsequent public censure or fine issued by the DFSA can be referred to the Financial Market’s Tribunal (FMT) for review and potentially set aside. A person can appeal a decision of the FMT, on a point of law, to the DIFC Courts.

In addition, the DFSA may consider consistent failure to comply with regulatory filing deadlines as an indication of poor governance and management that may result in further supervisory and/or enforcement action.

By adopting the FPN regime, the DFSA can impose penalties for clear and simple breaches of the DFSA Rules, an approach consistent with regulators in Australia and Canada. Importantly, this is likely to be considered a more proportionate use of its powers than the Decision Notices published in January 2023 against two Authorised Firms for late filing of Annual AML Returns.

Authorised Firms and Auditors are now exposed to clear financial penalties for failing to meet their regulatory reporting requirements. It is therefore important that all such firms understand their own reporting obligations and the consequences for non-compliance. Firms should adopt and implement policies and procedures that ensure filing deadlines are met, particularly as the DFSA noted in its April 2023 consultation that the FPN regime is likely to be broadened once introduced. This may include future FPNs for more general reporting breaches, such as failing to report a change in an Authorised Person’s legal structure, or to provide the DFSA with “reasonable advance notice” of a change. It remains to be seen how easy that will be to implement in the absence of fixed time periods for reporting, but the current FPN regime is clear, and firms need to be on top of it.