On Tuesday, officials in Abu Dhabi announced that an online investing and trading platform had been penalized around Dh450,000 for issuing securities without a valid prospectus.
Abu Dhabi authorities penalize an online investment platform for securities violations
Abu Dhabi authorities recently announced that Sarwa Digital Wealth, an online investment and trading platform, has been fined nearly Dh450,000 for offering securities without an approved prospectus. The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) discovered the violation and imposed a penalty of Dh449,881 on Sarwa.
According to regulations, before offering securities in the ADGM, a company must obtain approval for a prospectus from the FSRA. A prospectus is a comprehensive document that provides investors with essential information to make informed decisions about investments.
Consequences of Non-Compliance
An investigation by the FSRA revealed that Sarwa, between April and May 2023, offered its network of clients and registered application users an opportunity to invest in securities related to its parent entity's shares. Sarwa conducted this offering by disseminating communications to potential investors, maintaining a website with additional offer-related information, and engaging in direct communication to provide further details and facilitate subscriptions.
However, since Sarwa did not have an approved prospectus, potential investors did not receive sufficient information about the investment opportunity. Despite this, 144 investors subscribed to the offer, committing approximately $2.1 million.
In addition to the financial penalty, the FSRA has instructed Sarwa to review its governance arrangements.
Upon being informed of the FSRA's concerns, Sarwa reportedly took immediate action. The company reversed all committed subscriptions and agreed to settle the penalty promptly to avail of a discount. Furthermore, Sarwa received a further reduction in the penalty as a result of regulatory action taken by the Dubai Financial Services Authority (DFSA).
Emmanuel Givanakis, CEO of the FSRA, emphasized the importance of investor protection and maintaining high standards of conduct among regulated entities. He stated that this enforcement action demonstrates the FSRA's commitment to its regulatory framework, ensuring investor protection remains paramount. Additionally, the FSRA's investigation was conducted in close coordination with the DFSA, which investigated a related licensed firm in the Dubai International Financial Centre.
This enforcement action underscores the critical role of regulatory oversight in safeguarding investor interests and maintaining the integrity of financial markets. By penalizing Sarwa Digital Wealth for offering securities without an approved prospectus, the FSRA sends a clear message to all regulated entities about the importance of compliance with regulatory requirements.
Sarwa's swift response to reversing subscriptions and settling the penalty reflects a commitment to rectifying regulatory breaches and upholding industry standards. Moving forward, this incident serves as a reminder for companies operating in the financial services sector to prioritize regulatory compliance and ensure transparency in their offerings to investors.