In February 2023, the Securities and Commodities Authority of the UAE (hereinafter – “SCA“) amended the Financial Activities Rulebook (hereinafter – “Rulebook“) in part of the requirements for persons promoting foreign funds in the UAE mainland territory.
For the purposes of this material:
- “foreign fund” means any fund registered outside the UAE mainland territory;
- “promotion” means provision of any information relating to a foreign fund in any way or means, including advertising, publication or provision in any other way or means of any data relating to such fund;
- “professional investors” means persons who fall into one of the following categories:
▪ international bodies and organizations whose members are states, central banks, or national monetary authorities;
▪ capital market institutions licensed by SCA or a similar supervisory authority, financial institutions, investment funds, regulated pension fund management companies or organized pension funds, as well as any bodies whose main activity is the investment in financial instruments, asset securitization, or financial transactions, and companies whose shares are listed or accepted to being traded in any market of an IOSCO state member;
▪ trustees who have, during the past 12 months, assets of not less than AED 35 mln (approx. USD 9.5 mln), as well as licensed authorized persons of family offices with assets of not less than AED 15 mln (approx. USD 4.1 mln);
▪ joint ventures that have or have had at any time during the past 2 years net assets of not less than AED 25 mln (approx. USD 6.8 mln), as well as large undertaking persons who, on the date of his last financial statements, fulfills at least two of the following requirements: (i) its total assets are not less than AED 75 mln (approx. USD 20.4 mln); (ii) its annual net income is not less than AED 150 mln (approx. USD 40.8 mln); and/or (iii) the sum of cash and investments in the balance sheet or the total of its authorized capital minus his paid-up capital is not less than AED 7 mln (approx. USD 1.9 mln);
▪ resident individuals (and any trusts/foundations associated with such individuals):
– owning net assets of not less than AED 4 mln (approx. USD 1.1 mln);
– specifically approved by SCA or a similar supervisory authority, as well as employees at the licensed body, a regulated financial institution, or whoever has been employed by either of them during the past 2 years or has sufficient knowledge and experience in the field of investment and its risks in accordance with the suitability standards.
1. New Rules for Promotion of Foreign Funds when Dealing with Professional Investors in the UAE
Starting February 2023, promotion of foreign funds in the UAE mainland territory requires:
1. holding a Category 5 SCA License (hereinafter – “SCA License”) by the person conducting such promotion – at the same time, the process of obtaining an SCA License consists of two stages: initial approval of the applicant and the licensing itself, and is considered to be quite resource intensive:
▪ in the process of issuing an SCA license, the applicant’s compliance with a number of financial, experience and team competency requirements (including a number of quite subjective criteria – “appropriate composition of partners, directors and senior management”, “integrity”, “adequacy of resources”, etc.) is verified;
▪ to assess the applicant’s compliance with the established requirements, the applicant is required to submit a quite voluminous package of documents, including information on the company’s previous experience and its compliance with the licensed type of activity, feasibility study and action plan of the company, biographies and confirmation of the experience and competence of the founders and management, confirmation letters from banks and competent judicial authorities on a number of issues, etc;
▪ the process of preparing the required package of documents by the applicant and waiting for SCA’s decision to issue an SCA license is quite time consuming and usually takes several months;
▪ obtaining an SCA license requires the payment of an official fee of AED 13,000 (approx. USD 3,540) and additional costs related to the preparation of the package of documents and engagement of consultants (if necessary);
2. SCA registration of the foreign fund to be marketed – in addition, prior to such SCA registration, the authorized representative of the foreign fund shall register as its legal representative on SCA’s online portal and then take all necessary actions to register the fund itself (the official registration fee is AED 12,000 (approx. USD 3,270)).
The above requirements do not apply to marketing to foreign exchange-listed funds, and to any funds when marketing to prospective clients that are government structures or state-owned enterprises.
2. New Rules for Promotion of Foreign Funds when Dealing with Ordinary Investors in the UAE
Starting February 2023, promotion of foreign funds when dealing with ordinary investors (i.e., investors who do not meet the criteria of the “professional investor” category) is prohibited.
For violation of the rules (when interacting with professional/ordinary investors), SCA may impose sanctions on the relevant person: from warning and/or publishing information about the violator on the official website of SCA to fines, suspension of the company’s activities (activities of the employees of such company) and/or revocation of SCA license/permit issued to the company to carry out any other activities in the UAE financial market.
This material is for reference only and does not constitute advice or legal opinion. If you have any questions regarding this communication, please contact us at firstname.lastname@example.org.
 Board of Directors No. (13) of 2021 on the Financial Activities Rulebook and Mechanisms of Adjustment (Rulebook).
 For the avoidance of doubt, the license obtained to operate a company at its establishment stage and the license issued by SCA as a “special” regulator of the UAE financial market to conduct additional licensed activities are different licenses.
Moreover, the requirement to hold a Category 5 SCA License for the purpose of marketing foreign funds in the UAE mainland also applies to those persons who already hold an SCA license of any other category, as no other license entitles to engage in the relevant activity.
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