• GENE Chapter 8 GENE Chapter 8 Controllers and close links

    Amended by RM/2018-4 (as from 1st August 2018).

    • GENE Part 8.1 GENE Part 8.1 General provisions

      • GENE 8.1.1 Introduction

        This Chapter is about:

        (a) the controllers of applicants for authorisation and authorised firms, and the entities with which such applicants and firms have close links;
        (b) the obligations and procedures relating to first becoming such a controller, and to increasing, decreasing and ceasing control; and
        (c) the systems and controls that a firm must have, and the reports it must make, relating to its controllers and the entities with which it has close links.
        Note Under rule 2.3.1, the connection of an applicant or authorised firm with its controllers, and the persons with which an applicant or firm has close links, are matters to be considered in determining an applicant's or firm's fitness and propriety.
        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.1.2 Application of Part 8.1

        This Part applies to an authorised firms.

        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.1.3 Meaning of controller, types of control and first becomes a controller

        (1) Controller, of an authorised firm, is a person who (whether alone or together with 1 or more associates) has acquired control over the firm through any of the following types of control described in FSR, article 37 (1):
        (a) holding 10% or more of the shares in the firm;
        (b) being entitled to exercise, or control the exercise of, 10% or more of the voting power in the firm;
        (c) holding 10% or more of the shares in a parent entity of the firm;
        (d) being entitled to exercise, or control the exercise of, 10% or more of the voting power in a parent entity of the firm;
        (e) being able to exercise significant influence over the management of the firm or a parent entity of the firm because of the person's shareholding or voting power, or by contractual or other arrangements;
        Guidance
        Other arrangements include trusts, agreements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights. These arrangements could comprise a number of arrangements that would not individually enable the person to exercise a type of control over the authorised firm but would do so if they were taken together.
        (f) being able to exercise, or control the exercise of, 10% or more of the voting power in the firm because of the person's shareholding or voting power in a third party that holds 10% or more of the shares of the firm;
        (g) being able to exercise significant influence over the management of the firm because of the person's shareholding or voting power in a third party that holds 10% or more of the shares of the firm.
        (2) In determining whether a person is a controller of an authorised firm, any shares, voting power or rights to acquire shares or voting power that the person holds in the firm (whether alone or together with 1 or more associates) must be disregarded if:
        (a) the shares are held for the sole purpose of clearing and settling within a short settlement cycle;
        (b) the shares are held as custodian or nominee and the voting power attached to the shares is exercised only in accordance with written instructions given to the person; or
        (c) the person is an authorised firm and it:
        (i) acquires shares as a result of an underwriting of a share issue or a placement of shares on a firm commitment basis;
        (ii) does not exercise the voting power attached to the shares or otherwise intervene in the management of the issuer; and
        (iii) retains the shares for less than 1 year.
        (3) A person first becomes a controller:
        (a) when the person becomes a controller of the firm for the first time; or
        (b) if the person is not a controller of the firm but had previously been such a controller — when the person again becomes a controller of the firm.
        Inserted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.1.4 Meaning of increases control

        (1) A controller increases control over an authorised firm if:
        (a) the controller (whether alone or together with 1 or more associates) acquires a different type of control over the firm;
        (b) the controller becomes a parent entity of the firm;
        (c) the percentage of shares held by the controller (whether alone or together with 1 or more associates) in the firm or in a parent entity of the firm increases from, or below, a level mentioned in subrule (2) to above that level; or
        (d) the percentage of voting power that the controller (whether alone or together with 1 or more associates) is entitled to exercise, or control the exercise of, in the firm or in a parent entity of the firm increases from, or below, a level mentioned in subrule (2) to above that level.
        (2) The levels for increased control are 24%, 49% and 74%.
        Inserted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.1.5 Meaning of decreases control

        (1) A controller decreases control over an authorised firm if:
        (a) the controller (whether alone or together with 1 or more associates) loses a type of control over the firm;
        (b) the controller ceases to be a parent entity of the firm;
        (c) the percentage of shares held by the controller (whether alone or together with 1 or more associates) in the firm or in a parent entity of the firm decreases from above a level mentioned in subrule (2) to, or below, that level; or
        (d) the percentage of voting power that the controller (whether alone or together with 1 or more associates) is entitled to exercise, or control the exercise of, in the firm or in a parent entity of the firm decreases from above a level mentioned in subrule (2) to, or below, that level.
        (2) The levels for decreased control are 74%, 49% and 24%.
        Inserted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.1.6 Meaning of voting power and control

        (1) Voting power of a person in an authorised firm or a parent entity of the firm means the total rights of the person to vote, or take part in any decision-making, about any of the following:
        (a) the distribution of capital or profits of the firm to its shareholders;
        (b) the articles of association, partnership agreement or similar document constituting the firm or governing its activities;
        (c) any variation of the share capital of the firm;
        (d) any appointment of a director (however called) of the firm;
        (e) the overall policy of the firm.
        (2) A person's voting power includes:
        (a) voting power held by a third party with whom the person has concluded an agreement that obliges the person and the third party to adopt, by concerted exercise of the voting power they hold, a lasting common policy towards the management of the firm or parent entity;
        (b) voting power held by a third party under an agreement concluded with the person providing for the temporary transfer, for consideration, of the voting power;
        (c) voting power attaching to shares that are lodged as collateral with the person, if the person controls the voting power and declares an intention to exercise it;
        (d) voting power attaching to shares in which the person has a life interest;
        (e) voting power that is held, or may be exercised in any of the ways described in paragraphs (a) to (d), by a subsidiary of the person;
        (f) voting power attaching to shares deposited with the person that the person has discretion to exercise in the absence of specific instructions from the shareholders;
        (g) voting power held in the name of a third party on behalf of the person; and
        (h) voting power that the person may exercise as a proxy where the person has discretion about the exercise of the voting power in the absence of specific instructions from the shareholders.
        (3) Control (of the exercise of voting power) includes direct and indirect control, and control that is exercisable as a result, or by means, of arrangements or practices:
        (a) whether or not having legal or equitable force; and
        (b) whether or not based on legal or equitable rights.
        (4) If the percentage of total rights to vote or participate in decision-making differs as between different types of voting or decision-making, the highest of those percentages applies for the purposes of this rule.
        (5) If a firm or parent entity:
        (a) is limited both by shares and by guarantee; or
        (b) does not have a share capital;
        this rule has effect as if the members or policy holders of the firm or parent entity were shareholders.

        Note FSR, article 37 (3) (B) states that voting power, in relation to an authorised firm or relevant parent entity which does not have general meetings at which matters are decided by the exercise of voting rights, means the right under the constitution of the authorised firm or relevant parent entity to direct the overall policy of the authorised firm or relevant parent entity or alter the terms of its constitution.

        Editorial changes (as from 1st January 2016).

    • GENE Part 8.2 GENE Part 8.2 Seeking approval to change control — QFC entities

      • GENE 8.2.1 Application of Part 8.2

        This Part applies to an authorised firm that is a QFC entity.

        Editorial changes (as from 1st January 2016).

      • GENE 8.2.2 Approval to change control — QFC entities (FSR, articles 35 and 38)

        A person must not first become a controller or increase or decrease control over an authorised firm without the Regulatory Authority's approval.

        Editorial changes (as from 1st January 2016).

      • GENE 8.2.3 Controller notice seeking approval to change control — QFC entities

        (1) An authorised firm must give a controller notice in the approved form to the Regulatory Authority before a person becomes a controller of the firm or increases or decreases control over the firm. The controller notice serves as an application for the approval required under rule 8.2.2.
        (2) If the firm does not know of the matter or does not have sufficient information to give the controller notice, the notice must be given by the person proposing to first become a controller or increase or decrease control.
        (3) If the firm has reasonable grounds to suspect that any of the matters mentioned in subrule (1) exists, the firm must make appropriate inquiries to satisfy itself about the matter and decide whether it should give a controller notice.

        Note Under FSR, article 36 (3), an authorised firm that does not have sufficient information to enable it to give the controller notice must notify the person proposing to acquire or change control about the person's obligation to give the controller notice to the authority.
        (4) A controller notice must be given:
        (a) at least 30 days before the person first becomes a controller or increases or decreases control; or
        (b) if it is not practicable to give the notice in accordance with paragraph (a) — immediately after the firm or person required to give the notice becomes aware of the matter.
        (5) A controller notice may be withdrawn at any time before the authority decides on the application for approval.
        (6) If, at any time before the authority makes its decision, the firm or person making the proposal becomes aware of a change that is reasonably likely to be material to the Regulatory Authority's decision, the firm or person must notify the authority about the change without delay.
        Editorial changes (as from 1st January 2016).

      • GENE 8.2.4 Additional requirement — letter of comfort

        (1) A controller notice must be accompanied by a letter of comfort if the notice is seeking approval to increase existing control:
        (a) from a level of 10% to 48.99% to a level of 49% or more; or
        (b) from a level of 10% to 73.99% to a level of 74% or more.

        Note By giving a letter of comfort when a controller crosses the thresholds at 49% and 74%, the controller signifies its continuing willingness and commitment to support the firm in case of unforeseen contingencies that may affect the firm's ability to maintain adequate capital and liquidity levels in order to meet its obligations and regulatory requirements.
        (2) The Regulatory Authority may require a letter of comfort to accompany a controller notice seeking approval to increase control from a level of 10% to 23.99% to a level up to 48.99%.
        (3) A letter of comfort must be in a form acceptable to the authority and must state that the person:
        (a) has adequate financial resources to fulfil its commitments under the letter;
        (b) will support the firm:
        (i) to conduct its business under the applicable laws, regulations and rules; and
        (ii) to enable it at all times to meet its obligations in accordance with standards of prudence generally accepted for the firm's business; and
        (c) will notify the authority immediately of any significant change in its relationship with the firm.
        Guidance

        The Regulatory Authority expects the following to be part of the letter in addition to the matters in rule 8.2.4 (3):
        •  acknowledgment of its purpose
        •  clear statement of the relationship between the firm and the controller, and the type and level of control to which the letter relates
        •  the nature and extent of the commitments to support the firm.
        (4) A letter of comfort given by a person ceases to have effect if:
        (a) the person's level of control subsequently decreases to 49% or less; and
        (b) on application by the person, the Regulatory Authority is satisfied (after considering the person's financial capability, capital adequacy and risk profile and any evidence offered by the person) that the letter should cease to have effect.
        (5) The Regulatory Authority will notify the person in writing of its decision. If the authority is satisfied that the letter of comfort should cease to have effect, the notice must state the date when the letter so ceases.
        (6) A letter of comfort from a person that is not an individual must also state that it is made under a resolution of the governing body of the person. The person must give a copy of the resolution to the Regulatory Authority if the authority requires it.
        (7) A firm that is the beneficiary of a letter of comfort must immediately notify the authority of any cancellation or variation of the letter.
        Amended by QFCRA RM/2015-1 (as from 1st July 2015).

      • GENE 8.2.5 Approval process (FSR, article 38)

        (1) If the Regulatory Authority receives a controller notice in relation to a proposal for a person to first become a controller of a firm or to increase or decrease control over a firm, the authority may:
        (a) approve the proposal without conditions;
        (b) approve the proposal subject to such conditions as the authority considers appropriate;
        (c) refuse to approve the proposal; or
        (d) object to the proposal and then decide whether to approve or refuse to approve it.
        Note 1 Under FSR, article 38 (2), the Regulatory Authority shall seek to make its determination within 30 days of receipt of all the required information and shall notify the authorised firm (or if the controller notice has been submitted by another person, both the firm and that other person) of its determination promptly.

        Note 2 Under FSR, article 38 (4), the Regulatory Authority may grant unconditional approval only if it is satisfied that:
        •  the person acquiring or increasing the control is a fit and proper person to have the control in question;
        •  the conditions in article 29 (5) (A) and (B) (Close Links) have been met; and
        •  granting such approval would be consistent with the regulatory objectives.
        (2) Nothing in this rule prevents the authority from taking any other action against a person who has failed to comply with these rules or any other rules or law applying in the QFC.

        Note Under FSR, article 38 (6), the Regulatory Authority's power to approve or refuse to approve a proposal remains even if no controller notice seeking approval is given to the authority.
        Editorial changes (as from 1st January 2016).

      • GENE 8.2.6 Objection process

        (1) If the Regulatory Authority objects to a proposal for a person to first become a controller or to increase or decrease control, the authority must, as soon as practicable after it receives the controller notice, letter of comfort and any additional information it requires, give the authorised firm and the person written notice:
        (a) stating the reasons for its objection; and
        (b) giving the firm and person an opportunity to make representations within 14 days after receipt of the notice or a longer period fixed by the authority.
        Example
        The Regulatory Authority may object to a proposal if it considers that the letter of comfort accompanying the application is not acceptable taking into consideration the financial capability, capital adequacy and risk profile of the proposed controller or controller and the authorised firm.
        (2) The authority must, as soon as practicable after the expiry of the period for making representations, consider any representations and:
        (a) withdraw its objection and approve (with or without conditions) the proposal; or
        (b) refuse to approve the proposal.
        Note Under rule 5.2.2 (2), the Regulatory Authority may require a person to give additional information in relation to any document given to the authority.
        Editorial changes (as from 1st January 2016).

      • GENE 8.2.7 When approved proposal lapses

        (1) A proposal for a person to first become a controller or to increase or decrease control that has been approved (with or without condition) must be acted on by the person:
        (a) by the date specified by the Regulatory Authority in its approval; or
        (b) if there is no date specified — within 6 months after the date of the approval.
        (2) The approval lapses if the person does not become a controller or does not increase or decrease control by that date or period, unless the Regulatory Authority gives an extension in writing.
        Inserted by QFCRA RM/2014-1 (as from 1st February 2014).

    • GENE Part 8.3 GENE Part 8.3 Giving notice about changes in control — branches

      • Approval - Local Firms [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

      • Notification - Local Firms [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

      • Notification - Non-Local Firms [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.3.1 Application of Part 8.3

        This Part applies only to authorised firms that are branches.

        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.3.2 Controller notice about changes in control of branches (FSR, article 36)

        (1) An authorised firm must give a controller notice in the approved form to the Regulatory Authority if the firm knows that:
        (a) a person is proposing to first become a controller of the firm;
        (b) a controller is proposing to increase control over the firm;
        (c) a controller is proposing to decrease its level of control over the firm from more than 50% to 50% or less; or
        (d) a controller is proposing to cease control.
        (2) The notice must be given immediately after the firm becomes aware of the matter.
        (3) If the firm has reasonable grounds to suspect that any of the matters in subrule (1) exists, the firm must make appropriate inquiries to satisfy itself about the matter and decide whether it should give a controller notice.

        Note A firm that is a branch must have systems and controls to monitor changes in control; it must also give to the authority annual reports on controllers (see rules 8.5.2 and 8.5.3).
        Amended by QFCRA RM/2015-3 and Editorial changes (as from 1st January 2016).

      • GENE 8.3.3 GENE 8.3.3 [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

        • GENE 8.3.3 Guidance [Deleted]

          Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

    • GENE Part 8.4 GENE Part 8.4 Giving notice about controllers

      Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.4.1 Application of Part 8.4

        This Part applies to all authorised firms.

        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.4.2 Significant changes in controllers

        (1) An authorised firm must give notice to the Regulatory Authority if any of the following matters happen in relation to a controller:
        (a) the controller is the subject of a legal proceeding or an investigation that calls, or might call, the controller's integrity into question;
        (b) there is a significant deterioration in the controller's financial position;
        (c) there is any significant change in the conduct or circumstances of the controller that might reasonably be considered to diminish the fitness and propriety of the firm or its ability to conduct its business soundly and prudently;
        (d) if the controller is not an individual — the controller undergoes a substantial change or series of changes in its governing body;
        Note Governing body is defined in the glossary.

        Examples for para (d)
        1 for a firm incorporated under the Companies Regulations 2005 — removal or replacement of a majority of the members of the board of directors in a single event or a series of connected events
        2 for a firm that is a partnership constituted under the Partnership Regulations 2007 — removal of all, or a majority of, the members of the body (whatever it is called) that, under the firm's constitutional document, has the responsibility of overseeing the firm's business in or from the QFC
        3. for a firm that is a branch that has for its governing body a committee of management given the responsibility of overseeing the firm's business in or from the QFC — abolition or change of the committee.
        (2) The notice must be given in the approved form immediately after the firm becomes aware of the matter.
        (3) If the firm has reasonable grounds to suspect that any of the matters in subrule (1) may happen or has happened, the firm must make appropriate inquiries to satisfy itself about the matter and decide whether it should give notice.

        Guidance

        The test of reasonable grounds for suspicion applies to the firm's obligation to make inquiries for itself (and thereafter decide whether or not to give notice). The grounds for making inquiries based on the suspicion must be that a reasonable person would, in the circumstances, be expected to make those inquiries.
        (4) If there is a legal or regulatory restriction on a firm's complying with subrule (1), (2) or (3), the firm must immediately notify the Regulatory Authority of the specific nature of the restriction. On being notified, the authority will direct the firm as to what action the firm must take to comply with this rule.
        Editorial changes (as from 1st January 2016).

      • GENE 8.4.3 [Deleted]

        [Deleted]

        Deleted by QFCRA RM/2010-04 (as from 1st October 2010)

      • GENE 8.4.4 [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.4.5 [Deleted]

        [Deleted]

        Deleted by QFCRA RM/2010-04 (as from 1st October 2010)

      • GENE 8.4.6 [Deleted]

        [Deleted]

        Deleted by QFCRA RM/2010-04 (as from 1st October 2010)

      • GENE 8.4.7 Time limit for giving controller notice [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

    • GENE Part 8.5 GENE Part 8.5 Systems, controls and reports

      • GENE 8.5 Guidance [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.5.1 Application of Part 8.5

        This Part applies to all authorised firms.

        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.5.1A Meaning of close links for Part 8.5

        (1) For this Part, an authorised firm has close links with any undertaking:
        (a) that is its direct holding company;
        (b) that is its direct subsidiary;
        (c) that is another direct holding company of a subsidiary of the firm; or
        (d) that is another direct subsidiary of the firm's holding company.
        (2) For this Part, an authorised firm has close links:
        (a) with any undertaking of which the firm owns or controls 10% or more of the voting rights or shares; or
        (b) with any undertaking that, or individual who, owns or controls 10% or more of the firm's voting rights or shares.
        (3) For this rule, an undertaking is an entity that is carrying on a trade or business with or without a view to profit.
        Inserted by RM/2018-4 (as from 1st August 2018).

      • GENE 8.5.2 Systems and controls to monitor changes (FSR, article 36 (4))

        The systems and controls that an authorised firm is required to have under FSR, article 36 (4) must enable it to be notified of, and to monitor:

        (a) any change or proposed change of its controllers;
        (aa) any change or proposed change in the persons with which it has close links;
        (b) any significant change in the conduct or circumstances of its controllers, or the persons with which it has close links, that might reasonably be considered to diminish the fitness and propriety of the firm or its ability to conduct its business soundly and prudently; and
        (c) any other change required to be notified to the Regulatory Authority under these rules.

        Examples of how to monitor

        A firm may monitor changes about controllers using regulatory disclosures, press reports, public announcements, share registers and entitlements to vote, or the control of voting power, at general meetings

        Note Matters referred to in paragraph (a) will be reported to the Regulatory Authority under Part 8.2, 8.3 or 8.4, as appropriate. Matters referred to in paragraph (b) will be reported under rule 8.4.2 (1) (c).
        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.5.3 Annual report on controllers (FSR, article 40)

        (1) The annual report on controllers that an authorised firm is required to give to the Regulatory Authority under FSR, article 40 must include:
        (a) the name of each person who was a controller of the firm at any time during the financial year;
        (b) the type of control (that is, whether by way of shareholding or of voting rights) held by each controller;
        (c) if applicable, the level of control (expressed as a percentage) held by each controller;
        (d) for each controller that is an individual — his or her date and place of birth; and
        (e) for each controller that is a body corporate — its place of incorporation, address and registered number.
        (2) In subrule (1):
        (a) a reference to an individual's place of birth is a reference to the country, and the city or town, in which that birth happened; and
        (b) a reference to a body corporate's place of incorporation is a reference to the jurisdiction of its incorporation and the city or town in which its principal office is located.
        Amended by RM/2018-4 (as from 1st August 2018).

      • GENE 8.5.4 Annual report about close links

        (1) With the report on controllers referred to in rule 8.5.3, an authorised firm must give the Regulatory Authority a report setting out the following:
        (a) the name of each person with which the firm had close links at any time during the financial year;
        (b) for each such person who is an individual — his or her date and place of birth;
        (c) for each such person that is a body corporate — its place of incorporation, address and registered number;
        (d) the firm's relationship with each such person;
        (e) for each such person, if applicable, the level of control (expressed as a percentage of shareholding or voting power or both, as the case may be) that the person held over the firm; and
        (f) for each such person, if applicable, the level of control (expressed as a percentage) that the firm held over the person.
        (2) In subrule (1), references to an individual's place of birth, or to a body corporate's place of incorporation, have the same respective meanings as in rule 8.5.3 (1).
        Inserted by RM/2018-4 (as from 1st August 2018).

    • GENE 8.6 GENE 8.6 Annual Controllers Report [Deleted]

      Deleted by QFCRA RM/2014-1 (as from 1st February 2014).

      • GENE 8.6.1 [Deleted]

        Deleted by QFCRA RM/2014-1 (as from 1st February 2014).