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DFSA Fines Ex-Executive at Mystery Wealth Management Firm $7,500

Chris Hamblin, Clearview Publishing, 6 November 2013

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The Dubai Financial Services Authority has imposed a fine on an executive at an unnamed firm for sending out false information in a bank reference letter (a formal message in which a regulated entity quotes the value of a client's portfolio) to another financial institution.

Tareck Fouad Farah, who sent the letter in April 2009 and resigned his post (presumably upon discovery) in January 2011, seems to have been erroneously convinced that a client was a high-net-worth individual and prepared to deceive others about his or her status.

Farah broke GEN rule 4.4.1 – principle 1, which deals with integrity. His 'enforceable undertaking' document – in which the regulatory imposes the fine on him – makes it clear that to be held guilty of this, one merely has to be an authorised individual and to knowingly send a letter containing inaccurate information to another financial institution. The regulator's contention – that he “has not observed high standards of integrity and fair dealing in carrying out every licensed function” – marks this rule out as a good 'catch-all' clause for future disciplinary action. Although it was repealed over the summer, along with the whole general module (GEN) of the DFSA rules, it has risen again in Appendix 1 to the newGeneral Module (GEN) Instrument (no 119) 2013 as rule 4.2.1 of the new version of GEN. This rule is also called principle 1 and states (intentionally) vaguely that each authorised firm must observe high standards of integrity and fair dealing.

Farah also broke GEN rule 4.4.2 (now GEN 4.2.2) which is known, alternatively, as principle 2 and exhorts every authorised firm to act with due skill, care and diligence in conducting business. He did so by not looking at the client's portfolio before sending it, by not finding out about the firm's procedures for issuing a bank reference letter beforehand and then following them.

The wealth manager's excuses were as follows: that he did not know his firm's procedures for sending these letters; that he believed that the client's portfolio that his institution was handling was in the order of $2-3 million – he quoted it as double that at $5 million – but that this was better than the $191,000 that it actually was; that he was “under personal pressure in relation to the client's account,” whatever that may mean; that he was only trying to maintain a good relationship with the client; and that the client had told him that he/she was going to deposit $4 million with the firm as soon as the letter was sent (his did not happen); and that the letter contained a disclaimer that absolved him of all blame because it said: “this letter has been provided upon the request of the client without any responsibility or commitment on the part of the firm.”

Standard disclaimers of this sort, which in effect tell the recipients that the senders might be lying on their clients behalves, are evidently forbidden. Farah caused no financial loss to anybody from his folly; nor did he reap any financial gain.

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