INTERNAL CONTROL MANUAL (BROKERAGE HOUSE)

Senior Auditor : ____________________ Junior Auditor : ____________________

Ref Document Agreement Annex I SCA Regulation Annex II

1. 1.1. #

Checklist: Internal Control Questionnaire (ICQ) Audit Question Comments

1 Determine the existence of an Internal Audit Manual, (IAM) approved by the Brokerage Management and a copy filed with ESCA. 3 Ensure that the Internal Audit Manual is updated for amendments, in the laws, regulations, other regulatory decisions and the Authority(s) duly notified. 4 Ensure that the audit planning and procedures are conducted based on risk management.

Perform tests of internal controls, compliance with company policy, procedures and regulations.

Evaluate the effectiveness of the design of the internal procedures, operation of the policies and procedures surrounding the internal control in place. 7 Ensure that the test of internal control/compliance is sufficient to identify significant deficiencies in internal controls. 8 Document the assessment of internal controls and compliance based on tests performed and document the conclusion on the controls in effect.

9 Consider the nature, extent and timing of substantive tests based on the assessed level of control risk and the resulting acceptable level of risk detection. 10 Ensure that the audit sample size includes the following factors: Risk of assessing control, risk too low Tolerable Standard Deviation Rate Expected Deviation Rate Population Size

Sample Size Example 11 Consider, proper segregation of duties, Authorization of transactions by manager Recordkeeping (Access to Data) Custody of assets

1.2.

ESCA/ADSM/DFM Compliance

ESCAS Regulations 2000 including Resolution No.12,13 and 176/P of 2006. # Internal Audit Programme Comments

1. Evaluate that the partner of the Brokerage firm is not affiliated or occupies a management position in another Brokerage firm. Ref Article 3 Procedures a) The auditor should obtain a written representation from the management of the Brokerage Firm that they are not involved in the management or are not affiliated with the business of any other brokerage firm b) This can also be confirmed from the ESCA that maintains the register of Brokers specifying their names, addresses, registration no. and dates (Article no.2) 2. Ensure that the Brokerage firm only deals in the listed securities and the commodities Ref Article no. 4

Procedures This can be confirmed by verifying the recording of daily transaction on weekly basis through the trade logs generated by the trading department and segregated with respect to customers to ensure that the firm only deals in the listed securities and commodities 3. business Procedures Obtain the copy of renewed license from the Brokerage firm as a confirmation of its registration with the authority Article No. 5 Note: The Chairman of the Board has the power to halt the activities of an unlicensed brokerage firm. Ensure that the Brokerage firm has obtained a license from the Authority to carry on the

4. Ensure that the Brokerage Firm impedes from the business activities if the circumstances compels it to do so within a week from the commencement of such circumstances Ref Article no. 6 Procedures This can be done by analyzing the circumstances that compels the firm to refrain from its legal business activities and the Authority can remove its name from the Register of Members 5. Ensure that the Brokerage Firm has the share capital owned by 51% or more by juristic, natural person having the nationality of the State or Arab Gulf Co-operation Council AGCC States Ref Article 7(1),Resl no 13(2006) Procedures The percentage of shareholding can be verified from the annual return form that specifies the name, addresses, and percentage of share held by each of the director 6. Ensure that the paid up capital of the Brokerage company is 30 million Dirham (thirty million dirhams ) or greater. Ref Article 7(3) Procedures The share capital value can be confirmed from the annual return form that specifies the total value of the paid up share capital with the nominal value of each share and the total no of shares issued 7. Examine the status of a bank guarantee issued by a Bank operating in the State is in the amount of 20 million AED or greater. Ref Article 7(4) Procedures

a) Verify that the bank guarantee should be unconditionally issued in the favour of Clearing department. b) It should also be checked that amount of bank guarantee should also be increased progressively with the increase in the volume of the brokers business c) Verify the basis of apportioning this total figure of 20 million dirhams if the broker intends to operate in more than one market such that the sum of all accumulates to this figure of 20 million dirhams d) Obtain the confirmation from the Bank to verify this balance of bank guarantee as a direct evidence 8. Ensure that in order to increase the trading limit it should be backed by the bank guarantee with the Clearing department which will be in excess of the minimum requirement of 20 Million AED Ref Article 17 A broker shall not be allowed to trade in excess of the amount it has maintained as a bank guarantee deposited with the Clearing department. It has to make good that shortfall which occurs in excess of such guarantee in order to be allowed for trading as per these regulations Ref Article no. 19(4) Procedures

Verify the balance appearing in the net trade position report with the amount of guarantee it is maintaining with the bank in favour of the Clearing department 9. Ensure that the directors, executives, managers, of the brokerage firm have ever been unable to pay their commercial debts, or ever been declared as bankrupt or ever been given a sentence for an offence of dishonour,or breach of trust . Ref Article 7(5)

Procedures

This can be done by obtaining a written representation from the management of the company that none of their directors, mangers, executives have ever been declared to be bankrupt, never been unable to settle their commercial debts or have never been given a sentence for an offence of dishonour or breach of trust. 10. no.7(6) Ensure that the firm activity is restricted to the brokerage business only. Ref article

Procedures

This can be verified from the daily business activities by verifying the terms of contracts, the processing of daily transactions, the recording of daily transactions through the recording system which ensure that the business is restricted to the brokerage activities only 11. Confirm that the Brokerage firm appoints:

1. A General Manager or an Executive Manager 2. An Operations Manager 3. A Trading Manager 4. Four Broker's Representatives. Ref Article 7(7)

Procedures Ensure that these management positions satisfy the qualification and experience requirements as per the ESCA regulation no. 12

12. Ensure that at no point of time the firm has deviated from the regulations in which case the board has power to revoke the license issued to the broker. Ref Article no. 7(8)

Check that if any change occurs in the information relating to the license it should inform the Market and the Authority accordingly Ref Article no. 18(13) Ensure that the Broker shall maintain the minimum capital, the bank guarantee and the staffing levels provided for in the model format license application, or in these regulations Ref Article no 19(7) 13. Ensure that the Brokerage firm has been registered by submitting the required documents to the Authority along with the application for registration Ref Article no. 8 Procedures a) Verify the documentation the firm has made along with the application to the authority for the registration and if there is any deficiency it should be noted.

b) Ensure that this application for registration should be decided by the Board as accepted or rejected within 60 days from the application date Ref Article no. 9 c) Verify that if no decision is made by the Board within 60 days it shall be deemed rejected Ref Article no. 9 d) Check that if once the application is rejected it cannot be re-considered for application processing till the lapse of six months from the date of rejection Ref Article no. 9

14.

Examine that the Broker has a valid license and

the license has been renewed on annual basis Ref Article 10

Procedures Ensure that the Brokerage firm gets its license renewed at least a month before the end of each calendar year(December 31) which can be checked at the end of each calendar year

15. Verify that the firm has also obtained an approval on applying to the Market within one month of getting itself registered by the Authority. This application is for obtaining a license from the Market in order to practice the profession Ref Article no. 11 16. Ensure that the no directors, executives, managers, of the brokerage firm have ever been unable to pay their commercial debts, or ever been declared as bankrupt or ever been given a sentence for an offence of dishonour,or breach of trust

Moreover that he is a natural person he is of full legal capacity he is full time engaged in the profession

Ref Article no. 12(1) 17. Ascertain that the general executive manager, operations manager, trading manager, and the Brokers representatives have the prescribed qualification and relevant experience in their field as stated below

Designation Requirements

Qualification & Experience

Market Exam

General or Executive Manager

University degree and None

Atleast 5 years experience in field of securities First university certificate

Operation Manager

Atleast 4 years (For Nationals 2 years ) experience in field of securities or Higher university degree Atleast 2 years ( For National 1 year) experience

in field of securities None First university certificate

Trading manager

Atleast 4 years (For Nationals 2 years ) experience in field of securities or Higher university degree Atleast 2 years ( For National 1 year) experience

in field of securities Required to pass the Exam as prescribed by the market First university certificate

Brokers Representatives

Atleast 3 years (For Nationals no experience) experience in field of securities or Higher university degree Required to

Atleast 2 years ( For National no experience) experience in field of securities pass the Exam as prescribed by the market Ref Article 12(2)

18. Ascertain that the position described in article 7(7) has the necessary approval of authorities to work for another Broker by obtaining the agreement with the authority. Ref Article no. 13(B) 19. Verify the commission that accrues to the broker as soon as he has been instructed by the customer to enter into a contract and that contract has been made even executed in whole or in part Ref Article no. 14 20. The amount of commission shall be computed on following basis

A total commission of 0.00275 of the value of each transaction shall be charged, and such commission shall be apportioned as follows: (a) 0.0015 to the Broker (b) 0.0005 to the Market (c) 0.00025 to the Authority (d) 0.0005 to the Clearing. The commission collected on trading shall not in any event be less than 65 dirhams, of which the Broker's portion shall be 30 dirhams Market s portion shall be 20 dirhams, Authoritys portion shall be 5 dirhams and Clearing s portion shall be 10 dirhams.

The Broker may refund to the investor part of the commission he receives on each operation, but he shall raise a receipt for the commission he actually received, and enter the details of the receipt in a special register prepared therefor. Ref Article 15(Amendment through Resolution No. 13/2006 Procedure a) During the routine verification of the transactions the invoices raised in respect of sale or purchase of securities as per customer order should include the commission chargeable to broker, market, authority and clearing at the rates specified above b) The cases should be noted for over or under application of rates specified above.

21. Ensure that the sale of securities by broker is allowed ,after getting approval from the Director General (DG) of the Market, in respect of which the broker fails to perform his obligation arising from such transaction as per the customers instructions Ref Article no.16 Procedure Verify the timing of receiving and executing the transactions as per the customers instruction and if he fails to do so the broker shall be responsible to meet the loss that may arise from such transaction

22. Ensure that subject to the professional ethics the brokers as well as their representatives shall respect the following conditions in order to secure the market reputation as required by law :Ref Article 18 a) To inform the market about the contents of the advertising campaign (1)

b) The internal regulations ensure that the selection, monitoring of conduct of representatives is as per the professional principles and ethics (2) c) To report promptly to the concerned authorities any contravention by their representatives (3)

d) To report to the markets management the name of any customer who failed to meet its obligation (4) Procedures Verify that the contents about the advertising campaign has been provided by the brokerage firm to the Market before releasing them to public Verify the application of internal regulation relating to the proper selection and monitoring of conduct of representatives Check the cases where sanctions have been imposed upon the representative involved in the contravention 23. Ensure the following conditions relates to the trading of securities, customers record, including Ref Article 18 a) All the transaction order should be executed at the trading floor (5)

b) To refrain from disclosing the names of the customer/clients by the brokerage firm or information about their orders to other brokers or transacting parties (6) c) (7) d) To refrain from giving any untrue information relating to the listed securities, or to the brokers

To refrain from executing the sale or purchase orders for

 24. who

their own accounts the accounts of their company the members of their board of directors their employees the account of their spouses their ascendants their descendants or the account of spouse of descendants or their minor children (8) Ensure that the brokerage firm has refrain to execute the purchase orders from clients

Lacks creditworthiness Lack of probity Ref Article 18(9)

Procedures Verify this from the customers file which should reflect the financial position and creditability of the customer 25. Ensure that through the transaction execution the brokerage firm keeps in view the principles of loyalty, justice, equality and concern for the customer keeping in view the application of the laws or regulations like a the prudent man Ref Article 18(10) Procedures This should be done by executing the orders as per the customers instructions in the sequence of as and when they have been received Customer orders should be received and recorded through formal designated communication channel only Check that no order is accepted through the mobile phone

26. Check that the Brokerage firm settles the Markets liability on priority basis in respect of the transactions brokered on that date as per the regulations Ref article 18(12) Procedures

a) Verify that the recording of transaction on daily basis should be done by the firm by using Horizon and the E-Sys system that enables the firm to generate the results on daily basis , the amount if payable to the market should be paid within 2 days b) Check that the amount of balance payable should not exceed the amount of bank guarantee at any point of time c) Check that this amount of balance payable to the market should be settled by the firm irrespective of the fact that the firm has settled its accounts with the customer or not 27. Check that in respect of purchases of securities where the broker fails to comply with the customers requirements then the market should make the sale of securities on behalf of the customers Ref article 18(12) Procedures a) Verify that the loss arising in respect of the securities should be charged to the broker in respect of above transactions b) Check that the brokerage firm fails to enter into the companies register the name of the client /customer the upon its request market is eligible to make the sale of securities 28. Verify that the broker ascertain the sellers ownership if it intends to execute the transaction Ref Article 18(14) Check that all the transaction of securities the broker intends to contract for must not be disputed Ref Article 18(16) Procedures Ensure that at the time of executing the sale transaction the broker should ensure that the securities are owned by the seller 29. Check that the broker can only pay for the value of securities or commodities as per the Markets rules and regulations at the time of sale transaction execution on the floor Ref Article no 18(15) Procedures Ensure that no off the floor transaction has been executed by the broker for the sale or purchase of securities or commodities by verifying the net trade position transaction record for the broker or trade logs record for the customers 30. Check that the broker has developed the written internal procedures manual and has furnished the same within 3 months to the Authority reflecting the changes/amendments to be incorporated in them as and when done by the authority Ref Article no.18(b)

Procedures Verify the compliance of the brokers operations with the internal regulation manual by applying the walk through tests 31. Verify that the internal regulation manual includes the following Ref Article no.18(b)

The documentation cycle of investors dealing with the broker from the date of dealing to the date of operation completion and the documents the way he has been advised The brokers organizational chart stating the competences and responsibilities at each managerial level The brokers principal place of business, branches and other offices The system for recording the correspondence The system for keeping internal records The system for registering the investors complaints and the way they have been resolved The brokers system for internal audit and periodic review The brokers system to deal with the errors from the operations

The system for dealing with the investors instructions in the event of failure to pay the broker or other breaches of obligations 32. Ensure that the broker neither acts on behalf of nor transfer the license to another brokerage firm Ref Article no.19(1),(2) Procedure This can be confirmed from the broker by obtaining a written representation from the management of the brokerage firm 33. Check that the broker has in respect of every order it receives from the investor a proper system to Get every form signed by the client Record and archive the orders received by telephone Ascertain the authenticity of orders received by fax or email Retain the copies of such orders Issue confirmation to the clients for each order executed on the same day Ref Article no. 19(3)

34. Ascertain that the Broker is keeping a proper set of accounting records, commercial books and records or uses computers or other modern technology in accordance with International accounting standards, (IAS) and International Financial Reporting Standards (IFRS). Ref Article 19 (5)

35. Article 19 (5)) 36.

Ascertain that records, Back up files and copies are kept by the broker for 10 years. (Ref

Ensure that the Broker shall

submit final accounts and an annual balance sheet duly audited by an accredited auditor within one month from the end of the financial year, and also submit a quarterly statement on its financial circumstances, and

submit notification to the Market in the event of there being any deficit affecting the soundness of its financial position Ref Article no. 19(6) 37. Check that the Broker shall maintain financial solvency necessary for the conducting of its activity, such as to ensure its performance of its obligations. Ref Article 19 (8) Procedures Verify the balance at bank of the brokerage firm should be in excess of the balance payable as per the net trade position report on the basis of which the balance payable to the market is ascertained

38.

Check that if the broker is involved in the following activities including It contravenes the provisions of this law It fails to settle its dealings with the Clearing department If it submits the forged or false statement It acted in a misleading manner while transacting with the parties, or while trading

then market has the power to take a disciplinary action against the broker Ref Article no. 20 Procedures

Ensure that we, as the Internal Auditors, are also liable to report to the Authority on any contravention from these regulations so we shall report the Authority after checking the application of these regulations where the broker may deviate from them Regulations as to the Market Membership 39. Check the membership of the market for the brokerage firm which is licensed to carryout its operation as a brokerage firm Ref Article no 2 Procedures Check the following documents with an application duly signed by the Broker representative are provided by the (Article 4) within a week from the date of getting it licensed to practice the profession by the (Article 3)brokerage firm as an evidence for registration A copy of authority decision to issue the license A copy of the decision to register the firm in the market

Ref Article no. 5

40. Verify that market members shall comply with the legal provisions, regulations. and resolutions issued by the market from time to time for implementation Procedures Compare the actual compliance by the brokerage firm with the market rules regulations, and resolutions and note any deviation from them 41. All other provision from 6-20 relates to the application receipt issuance, time duration reqd to issue the market membership, member register to be kept by the market, application of code of professional conduct to the members, compliance with the regulations, renewal fees for membership, inspection by the board to comply with the regulations by the members, conditions relating to the termination of membership, regulation related to the General Assembly of members

Regulations as to the Listing of Securities & Commodities 42. Ensure that for listing of securities following regulations are complied with The company registration with the Ministry of Economy & Commerce

 Within two years from the date of incorporation of the company the company shall submit the audited 2 balance sheets The company approval from he authority for registration

The amount of the paid up capital shall not be less than 25 million dirhams or 35% of the subscribed capital whichever is higher (The amount of the share capital is not less than 50% of the shareholders equity i.e. it should not fall below the 20 million Dirhams figure ) At the time of submitting the application the shareholders equity should not be less than the paid up capital The company should disclose the names of those persons who hold more than 5% of the securities issued by the company The %age of securities held by those persons who are not the nationals

The companys performance and achievements as compared with the plan made in the BOD assessment in figure. The company shall be delisted or its listing will be cancelled by the board if following conditions apply If the net value of shareholders equity falls below 50% of the share capital If the market value of securities falls below the 60% of the nominal value of securities

If the share capital is reduced by passing a resolution in the extraordinary general meeting(EOGM) or if the company pass the resolution to sell major part of its asserts in that EOGM In the case of resolution to dissolve or liquidate the company Any radical change in the main activity or nature of companys business If the listing of securities remained suspended for more than 6 months If the company discontinues its activity In the case of merger with another company

(Ref Article no. 6,7,20,22) 43. Ensure the control over the market prices of securities not being affected by the disclosures of Chairman Directors General manager

Employees of the company

except after the disclosure through the market of sale or purchase of securities where they are informed about the prices quantity after approval from the Market director for the transaction(Ref Article 17)

Regulation 18-21 related to condition of publishing financial statement within (10days) of listing in the newspaper, Procedures for anti-money laundering These procedures are applicable to the Markets where securities are listed Brokers working at them

44. Market as well brokers at the time of opening any customers accounts should check that following information are there Full names and addresses of customers Trade license Place of work Original passport by having its copy being initialed by an officer All correspondence with the customers Recording contracts and transactions Recording the customers complaints and methods how they have been resolved

These records shall be kept for authority examination for a period of 5 years (Ref article no.3,7) Procedures While checking the customers files ensure that the file includes the information as required by these provisions and note for any discrepancy 45. All the settlement transactions which are in cash having their value above AED 40,000 (Forty thousand dirham) between the investor, broker and the financial market shall be recorded through the prescribed form(1) Procedures Check that during the verification of transactions all the cash transaction exceeding AED 40,000 figure should be recorded through the prescribed form and reported to the Authority

46. The Authority may, for the purpose of obtaining information about any matter which it considers may relate to these rules or to the integrity of the markets: require the immediate provision by a member firm of accurate information about its business and transactions (including transactions that are not on Market) in a format, electronic or otherwise, specified by the Authority; require the immediate production by a member firm of documents (which, for the purposes of these rules, shall include anything in which information of any description is recorded) in the member firm's possession, custody, power or control and, if any such documents cannot be produced, require the member firm to state to the best of its knowledge and belief where and in whose possession, custody, power or control they are and require the member firm to use its best endeavours to secure the documents; interview any employee or agent (or any employee of such agent) of a member firm and require such person to answer questions and provide explanations and/or require answers and explanations from the member firm, and record such answers and explanations electronically or otherwise; require the attendance, upon reasonable notice, of any employee or agent (or any employee of such agent) of a member firm at a specified date, time and place, to answer questions, provide explanations and/or give evidence and require the member firm to procure such attendance; require the provision of information relating to any person who is to be, is or has been an employee or agent (or any employee of such agent) of the member firm or engaged in its business; and send any authorised representative to a member firms offices at any time, for the purpose of inspections and investigations and to ensure compliance with these rules. LSE 47. Ensure that in respect of any unusual transactions the market as well as the brokerage firm should report to the Examination and Follow-up sections of SCA 48. Check the appointment of the Compliance Officer by the Financial Market to report any suspicious transaction relating to the money laundering

1.3. Trading Procedure # Internal Audit Questionnaire Comments

1 Ascertain that the individual investor who seeks to trade securities in Abu Dhabi Securities Market (ADSM) and Dubai Financial Market (DFM) has a direct securities account(I N ) with Clearing, Depository and Settlement Department , (CSD) and a trading account with the Broker firm. 2 Check that the customer has been issued only one exclusive identification number called investor number (IN) by the market 3 Ascertain that the investor identification number obtained from ADSM or DFM investor Help Desk or through its accredited Brokers has been obtained by the Investor. 4 Ascertain that the IN is referenced on all correspondence, forms and instructions of the customer. 5 Ascertain that the Brokerage firm has access to the Investors Account via the CSD.

6 Ascertain that arrangements for conversion of physical shares by the Securities Market by an accredited Broker has been verified by the company registrar. 7 Ascertain that the transfer of securities among Brokers have the necessary formal requests for transfers between Brokers. 8 Ascertain that the customer has a valid trading account with the Brokerage firm. IN # ,customer files with relevant information.

1.5 #

Securities Trading Internal Audit Questionnaire Comments

1 Ascertain that there is effective, efficient and formal communication between the customer and the Broker. 2 Ascertain that there is a proper system to ensure that the Brokerage firms staff is adhering to the principles and procedures of Know Your Client (KYC) at the time of opening new accounts of clients stating financial stability of the customer, investment objective and goals documented in the customers file. 3 Ascertain that the Brokerage firm is complying strictly with the customers instructions at the time of receiving the customers orders. Ensure that the customers investment objectives as stated when opening the account are being followed by the Brokerage firm. 4 Ascertain that all orders are recorded immediately and promptly into the electronic trading system upon receipt of an order from the customer.

5 Ascertain that the customer has been notified of the transaction confirmation and transfer of ownership occurs electronically from the seller to the buyer accounts once the trade is fully executed and completed. 6 Ascertain that telephone conversations conducted over the Securities Market telephone lines are recorded by the Brokerage firm. 7 Ascertain that the Brokerage firm records the specified price into the electronic trading system in cases where a limited price order had specified by the customer. 8 Ascertain that the best available market price executed by the Brokerage firm has been obtained on behalf of the customer. 9 Ascertain that orders carrying time validity are cancelled if the Brokerage firm has not performed the buy or sell during the period fixed for its execution by the customer. 10 Ascertain that the Brokerage firm has made trades according to the specified authorization and instructions given by the customer to place an order. 11 Ascertain that the customers is properly disclosing their shareholdings equal to or greater than 5% of the companys issued capital for which trades are made. Disclosure should be on file. 12 Ascertain that the investor is paying all the costs associated with trading securities especially the purchasing price and commissions or other fees required by ADSM and DFM as invoiced by Brokerage firm. 13 Ascertain that the customer had delivered to the Broker firm a duly signed power of attorney under which it authorizes the Brokerage firm to execute shares, transfer forms for and behalf of the customer. 14 Ascertain that the confirmation of instructions from the customer is prepared by the Brokerage firm within 48 hours of executing the transaction.

1.6 #

Online Trading Internal Audit Questionnaire Comments

1 Ascertain whether the speed of execution of trading through the internet of the Broker Firm has checked. This information should be available on a 24 hour basis.

Ascertain the process of issuance of user ID and password. How is the password verified?

Ascertain if the initial password issued by the Brokerage firm has been reset by the customer.

4 Ascertain that the required confidentiality has been maintained in the process of issuing passwords and user IDs. 5 Ascertain that the electronic system in the online trading is working properly and is checked periodically by the Brokerage firm for correct calculation. 6 Ascertain that the customers order sent to the floor is checked prior to sending. Does the order go directly to the floor in all cases? 7 8 9 Ascertain that the system updates customers order and executions in real time? Does the system keep track of customers real time profit or loss? Does the system control the risk and protection of assets exists?

1.7 Securities Clearing and Settlement # Internal Audit Questionnaire Comments

1 Ascertain and confirm that the clearing and settlement system of the Brokerage firm is in compliance with the relevant regulation of the ADSM & DFM. Ensure that the clearing and settlement system is aimed at reducing risk and not only improving market efficiency. 2 Determine the settlement methodology for multilateral netting system under which transactions are cleared and settled on a net basis by the Brokerage firm. 3 Determine that the transfer of security ownership is timely, and posted in the records after the transactions are cleared by the Securities Market-by ADSM or DFM. 4 Determine that at the end of each trading session, the amount of securities and money to be delivered and /or paid on the settlement day is determined through netting process and whether it reflected in the settlement report. Are the various customer accounts reconciled on a daily basis along with the daily transactions? 5 Ascertain that the ownership of purchased securities is transferred among customers respective trading accounts.

6 Determine that transactions are finally settled on a timely bais as per regulation, delivery of securities and /or payment of money, delivery versus payment. 7 Determine that the cash settlement is done among the Brokers through the settlement Bank and a/cs are reconciled.

1.8 # 1 2

Revenue - Brokerage-Test of Compliance Internal Audit Questionnaire Comments

Test the Brokerage firm invoice for commission accuracy. Test the customer file for agreement with Brokerage firm.

3 General, determine the recorded commission is based on approved documentation, Brokerage firm and customers agreement. 4 Test the posting of the revenues to the sales journal to ensure proper recording to the appropriate customer account. 5 6 Test mathematical accuracy of the trial balance. Trace amounts per subsidiary ledger to the general ledger.

7 Check Brokerage firm commission received to the master price list received from the Clearing House. 8 Trace sample of client agreement (selection from pre numbered client agreement) to brokers note and sales journal. 9 10 11 12 Review sample to ensure that all ESCA Requirements are in compliance. Prepare Report of I/A findings for management. Review with management Finalize Report with Managements comments for ESCA and Brokerage Firm.

1.9

Summary of Issues - Compliance

Observation - Reporting I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Determine the Risk Weighting viz High, Medium & Low :Procedural non- compliance in opening of customer accounts Inadequate documentation of customer orders Non-compliance with Anti-Money Laundering requirement Non-submission of list of 1st and 2nd degree relatives of Broker representatives. Absence of Fidelity and professional Indemnity Insurance Absence of Code of Conduct Absence of mechanism to record and resolve customer complaints . Non-compliance with cross trading rules. Non-compliance with minimum requirements for hiring of Broker Representatives. Deficiencies in trade confirmation and other correspondents to customers Absence of Office Operating manager and Compliance Officer. Inadequate Credit Controls/Credit Risk Management. Absence of a Risk Management Function Reconciliation of Back office System and Financial Statement System not capable of generating ageing reports Reconciliation of customer holdings Inadequate policies and procedures Absence of Discretionary Authority Limit Matrix.