June 22, 2023
As a continuation of the series of updates we have published in partnership with the Securities and Commodities Authority (SCA) of the United Arab Emirates (UAE), we have included below a summary of additional guidance on marketing foreign funds in the UAE mainland.
SCA Decision (02/RM) of 2023, Decision (03/RM) of 2023 and Decision (04/RM) of 2023 (New Regulations), effective February 1, 2023, Implemented certain key revisions Marketing of foreign funds (as defined below) in the UAE mainland. For the purposes of the New Regulations and this LawFlash, “Continental UAE” means the UAE excluding the Financial Free Zone (FFZ) of Abu Dhabi Global Market (ADGM) and Dubai International Financial Center (DIFC).
This LawFlash aims to address the most common inquiries received by the SCA and Morgan Lewis regarding the new regulations relating to the promotion of funds located outside the UAE mainland (foreign funds).
Marketing of foreign retail funds in the UAE
The new rules initially stated that offshore funds that (1) were registered with the SCA to engage in retail promotions prior to the new rules, and (2) complied with promotional contracts binding after February 1, 2023, could continue to sell to retail investors. Promotions. Although the new regulation prohibits foreign retail sales promotion, it will be until June 30, 2023 or the expiry of the relevant sales promotion contract, whichever is earlier.
Following extensive engagement with multiple stakeholders, the SCA agreed to extend this deadline to March 31, 2024. The move is aimed at giving foreign fund managers currently targeting retail investors time to form an SCA-licensed fund management entity to launch retail operations in the UAE mainland in response to requests from several asset managers for funding.To take advantage of this extended period, managers of foreign funds must submit an application to the SCA
- A list of foreign funds wishing to take advantage of the extended promotion period, which must have been registered with the SCA for retail promotions on or before December 31, 2022,
- A plan detailing the proposed establishment of a licensed fund management entity in the UAE that will enable it to offer investment funds domiciled in the country to UAE retail investors, as is currently the case for promoting foreign funds to UAE retail investors Alternative to March 31, 2024 Upon expiry of the extended period,
- a timeline for implementing the program within the specified deadline of March 31, 2024, and
- Pay the applicable renewal fee for promoting the requested foreign fund by March 31, 2024.
It is worth noting that as part of the new regulations, the SCA has implemented a number of changes aimed at rationalizing and simplifying the regulatory requirements for setting up investment funds, management companies and investment fund service providers in the UAE, such as
- Reduced the minimum capital requirement for UAE mainland fund managers from AED 50 million to AED 1 million,
- Reduce the minimum capital required for fund managers from AED 5 million to AED 1 million,
- Allow UAE mainland fund managers to use other types of legal vehicles and allow 100% foreign ownership of such entities,
- Reduce the requirements for individuals to become SCA certified to work in the investment funds industry, including removing previous requirements for certain exams,
- Reduce the SCA processing time to 20 working days for the UAE mainland fund manager or fund administrator license application,
- reducing the number of minimum mandatory functions (accreditation positions) required for SCA-licensed fund managers and allowing for the consolidation of certain accreditation positions,
- Permits the outsourcing of certain accredited jobs to professional third parties, and
- Allows for new regulatory classifications for mainland UAE funds and fund managers, such as family offices and self-managed funds (similar to “in-house managed” or self-managed investment firms).
Offshore funds targeting retail investors should note that the exceptions for listed funds specified in the “Financial Activities Rulebook and Adjustment Mechanism” (No. Amendment (Rulebook), applicable only to foreign funds approved by the SCA to list on the Abu Dhabi Securities Exchange (ADX) or Dubai Financial Market (DFM) (for avoidance of doubt this includes double listing elsewhere). This is because, for the purposes of the rulebook, offerings of securities listed on these markets are not considered “promotions” because such offerings must comply with the rules of the applicable market.
Marketing of foreign professional investor funds in the UAE mainland
The new regulations confirm that foreign funds may make pitches in the UAE mainland to professional investors (as defined in the Rulebook) on a private placement basis: (1) by persons licensed by the SCA to carry out pitches in the UAE mainland; and ( 2) Approved by SCA. This now includes Cayman Islands foreign funds (not initially approved by the SCA for mainland UAE promotion) provided the fund and fund manager are in good standing issued by the Cayman Islands Monetary Authority (CIMA) as part of the SCA Certificate promotion application.
Foreign funds should note that the minimum subscription requirement for foreign funds introduced to professional investors in the UAE mainland through the SCA registration and local promoter process is AED 500,000 (approximately USD 135,000), unless the minimum subscription amount in the PPM is higher.
The registration process promoted by Professional Investors requires applicants to provide evidence of foreign fund regulation in their jurisdiction. The SCA is aware that professional investor investment funds (AIFs) may not be regulated in many jurisdictions. In order to allow such alternative investment funds to register with the SCA for promotion to professional investors in the UAE mainland, the SCA will require the following:
- UAE promoters must issue a written undertaking to the SCA confirming that interests in the AIF will only be marketed in the UAE mainland to financial institutional professional investors and other well-informed professional investors, who in each case are able to adequately assess the risk. such investments. We therefore expect that local UAE promoters will require a signed statement from every mainland UAE professional investor who is promoted by an AIF confirming this.
- AIF requires a minimum subscription amount of AED 1 million (or equivalent in AIF currency) or, if higher, the minimum subscription amount in PPM.
- Local promoters must fully comply with the AIF prospectus or any other terms of the AIF offering as prescribed by the regulator in the jurisdiction in which the AIF is located.
Fund managers based in the FFZ can use the prevailing regime between the SCA and the DIFC and ADGM regulators to market foreign funds located in the FFZ to mainland UAE investors and vice versa (professional and retail), provided Conditions of the passport system All satisfied. Morgan Lewis expects that revisions to the pass-through regime may come in due course, given updates to the fund regimes in various jurisdictions since the pass-through regime was originally implemented.
We understand that the regulators of the Gulf Cooperation Council (GCC) member states are discussing the establishment of a fund pass regime. Further updates on the details and timing of the regime are expected in due course.