SCA Updates Regulations – Marketing Foreign Funds in the UAE | Dechert LLP

United Arab Emirates Securities and Commodities Authority (“SCA“) Issue new regulations on promoting foreign investment in the UAE¹ and establishment of funds registered in the UAE². In particular, public offerings of foreign funds in the UAE are no longer permitted and foreign funds (including UCITS) can no longer be registered with the SCA for public offerings. Foreign funds can only be sold in private placements to professional investors in the UAE and must be registered with the SCA for private placements.

SCA also revised the SCA rulebook³ Clarified that the “professional investor” exemption does not apply to the private placement of foreign funds in the UAE. In our opinion, according to the SCA Board of Directors Resolution No. (9/RM) of 2016 “Regulations on Investment Funds” (hereinafter referred to as “Fund Regulations 2016”) and the Professional Investor Exemption under the SCA Rulebook did not avoid such SCA registrations. We note that there is widespread misunderstanding in the market in this regard. The SCA Rulebook introducing the Professional Investor Exemption only partially repealed the 2016 Fund Regulations. The part of the Funds Regulations 2016 requiring all foreign funds to be registered with the SCA has not been repealed.

Foreign managers can set up local public feeder funds with the purpose of investing in foreign public funds and offer such funds to retail investors in the UAE. Therefore, one solution is for foreign fund managers to obtain a fund management license from the SCA in order to set up one or more public feeder funds in the UAE under the 2023 Funds Regulations.

We note that the UAE passport regime signed by the SCA, the Dubai Financial Services Authority of the Dubai International Financial Center (DIFC) and the Financial Services Regulatory Authority of the Abu Dhabi Global Market (ADGM) has not been amended. Accordingly, fund managers licensed in the DIFC or ADGM may continue to market funds registered with the DIFC or ADGM to accredited investors in the UAE by way of private placement, or pursuant to a public offering to retail investors in the UAE. We believe this may provide an alternative solution for foreign fund managers who are no longer able to publicly offer foreign funds such as UCITS to retail investors in the UAE. Foreign fund managers may obtain a fund management license in DIFC or ADGM to set up one or more public feeder funds in DIFC or ADGM for the purpose of investing in foreign funds they manage.

A summary of some other key changes include:

• The registration fee for introducing units of foreign private equity funds to professional investors has been reduced from thirty-five thousand dirhams (35,000 dirhams) to just ten thousand dirhams (10,000 dirhams).
• The renewal fee for foreign fund registration has been reduced from seven thousand five hundred dirhams (Dh7,500) to just five thousand dirhams (Dh5,000).
• Entities registered with the SCA to market foreign investment funds to retail investors (eg, public offerings) may transfer their registration to market foreign investment funds to professional investors (eg, private offerings) by filing an application with the SCA.
• Introducing protected cell funds in the UAE.

footnote

1) AD Resolution No. (04/RM) of 2023, regulating the domestic promotion mechanism for the adjustment of the status of foreign fund units.

2) Resolution No. (01/Chairman) of 2023 regulating investment funds (“2023 Fund Regulations“)

3) Resolution (02/RM) of 2023 amending the Rulebook for Financial Activities approved by Resolution (13) of 2021 of the SCA Board of Directors (“SCA Rulebook“).