DFSA Enforces Sanctions Against GFS Investments

by Mary Swire, Tax-News.com, Hong Kong

08 September 2008

The Dubai Financial Services Authority (DFSA) announced on Monday the imposition of enforcement sanctions against GFS Investments Limited.

The DFSA’s action follows a detailed investigation into the business operations of GFS Investments which determined:

* that GFS Investments has traded outside the permitted limits of its DFSA licence;
* that the trading included repeated instances of mis-selling, including transactions that were unfair, unsuitable and not made in the best interests of customers;
* that, in some cases, the mis-selling was accompanied by deliberate and dishonest conduct; and
* that the Licensed Directors of GFS Investments failed to exercise the required level of governance and supervision of their relevant executives and employees.

As a consequence of these findings, the DFSA has imposed a range of sanctions including:

* the banning from the Dubai International Financial Centre (“DIFC”) of relevant individuals for 5 years;
* the imposition of fines; and
* the compensation of relevant clients for financial losses suffered as a result of the misconduct.

The DFSA’s Chief Executive, Mr. David Knott, explained:

"The DFSA has an important role to maintain business standards within the DIFC. The vast majority of our licensed firms take their governance and compliance responsibilities very seriously and this has helped the DIFC to quickly establish a reputation for excellence. We are, therefore, disappointed by the unacceptable conduct of GFS Investments and our response should send a clear message that we will deal firmly with any firm that fails to maintain the standards required within this Centre.

“The DFSA’s intervention will also ensure that all investors who suffered financial loss as a result of the misconduct will be fully compensated at a cost to GFS Investments of approximately USD502,000 (AED 1,842,340). This is an excellent outcome for the investors”, Mr Knott continued.

Compensation payments by GFS Investments to customers who suffered losses resulting from the misconduct are to be finalised to the satisfaction of the DFSA by no later than November 30, 2008. The former Finance Officer of GFS Investments, Mr. Alfred Tang has undertaken to ensure that the amount of approximately USD 502,000 (AED1,842,340) is made available for the payment of compensation by GFS Investments.

GFS Investments has been fined USD25,000 (AED91,750). The business operations of GFS Investments have been suspended and may only be resumed upon DFSA’s satisfaction that new management has installed proper governance and risk management systems.

GFS Investments is licensed to provide an on-line foreign exchange and commodities trading facility to clients who meet DFSA’s required eligibility standards (professional investors). The trading platform is operated by the US parent company of GFS Investments.

Eligible professional investors gain direct access to that platform via unique login and password so that they may trade on their own account. Under its licence, GFS Investments is not itself permitted to conduct the trades, but receives commissions for each trade carried out by its customers.

The business is therefore, suitable for professional investors who have relevant market experience, but unsuitable for retail investors who may have little or no experience of foreign exchange and commodities markets.

Subsequent investigation disclosed that the relevant employees of GFS Investments engaged in conduct designed to misrepresent the eligibility of clients, including the falsification of client particulars.

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