SCA’s Official Guide to Marketing Foreign Funds in Mainland UAE: Five Key Points – Publication

In partnership with the Securities and Commodities Authority (SCA) of the United Arab Emirates (UAE), we outline below the forthcoming official guidance on marketing foreign funds in the UAE mainland and outline five key points to facilitate foreign funds in the UAE mainland UAE mainland.

According to SCA Decision No. (02/RM) of 2023, Decision No. (03/RM) of 2023 and Decision No. (04/RM) issued in mid-January 2023 (new regulations), SCA has implemented the Decision No. (03/RM) of 2021 13) important revision of the Board of Directors on the Rulebook of Financial Activities and the Adjustment Mechanism (Rulebook). The new regulations will come into effect on February 1, 2023.

background

The new regulations, released alongside an overhaul of the SCA fund regime, are aimed primarily at revitalizing the asset management industry in the UAE, including the Dubai International Financial Center (DIFC) and Abu Dhabi Global Market (ADGM), a financial free zone (FFZ), through Reduce regulatory arbitrage to protect UAE investors. The new regulations, along with many other initiatives introduced by the UAE government, are part of the UAE’s “We Are the UAE 2031” vision, which expands on the UAE’s successful economic growth and diversification plans to date.

The new regulations also have the practical effect of leveraging international best practice and bringing the UAE mainland’s investment management regulations and foreign fund promotion rules closer to those of several other Gulf Cooperation Council (GCC) member states, mainly Saudi Arabia; important for long-term discussions of GCC cooperation It’s a welcome change for international fund houses, whose committee has unified the value of the prevailing rules for foreign funds. We have also learned that the GCC member states are considering a GCC pass regime, which could be rolled out in the next few months.

key points

1. Marketing of foreign funds in the UAE mainland
   • 1.1. professional investor fund. Funds located anywhere outside the UAE mainland (foreign funds) may be introduced on a private placement basis to professional investors in the UAE mainland (a) by persons who are licensed by the SCA to carry out promotions in the UAE mainland and (b) have obtained an SCA. For the purposes of the New Regulations and this LawFlash, “Continental UAE” means the UAE excluding FFZ.
   • 1.2. retail investor fund. Public offerings of foreign funds to retail investors in the UAE mainland are not permitted. The SCA has confirmed that the use of ADGM, DIFC or UAE mainland feeder funds by foreign funds targeting retail investors in the UAE mainland is contemplated and will be permitted provided the ADGM or DIFC feeder funds comply with the Passport Regime (as defined below). UAE mainland feeder funds must comply with the SCA Fund Regulations.
2. Registration of foreign capital in SCA
   • 2.1. In order to market a foreign fund to professional investors in the UAE mainland, the legal representative of the foreign fund must (a) submit a foreign fund registration application for private placement promotion to professional investors in the UAE mainland, and (b) through a local promoter conduct such promotions Licensed by SCA. Before registering a foreign fund, the authorized representative (legal representative) of the fund must first register as a legal representative through the SCA online portal. Once approved as a legal representative, the representative can apply for foreign fund registration on the same portal. Upon completion of payment for foreign fund registration, the local promoters selected through the application will be notified and asked to approve the online undertaking submitted to the SCA. After the local sponsor approves the commitment, notify the legal representative to submit the application for the registration of foreign funds in the UAE mainland. All these submissions are made through SCA’s online portal, in line with the UAE Government’s commitment to paperless transactions. Thereafter, the SCA will review the request.
   • 2.2. As part of the new regulations, the SCA has reduced fees and review timelines.
     • 2.2.1. The registration fee has been reduced from AED 35,000 (non-refundable even if the application is rejected) to AED 12,000, which includes a non-refundable examination fee of AED 2,000 plus AED 10,000 for issuing registration approval .
     • 2.2.2. The estimated processing time for the SCA to review and approve the application is five working days, which includes acknowledgment to the applicant and the local sponsor, depending on the payment method the applicant chooses to pay for the registration approval. If the applicant chooses to pay the registration approval fee online, the approval will be issued and delivered immediately. However, if the applicant decides to pay offline, the registration approval will be issued and delivered upon confirmation of payment.
     • 2.2.3. The registration is valid until 31 December of the year in which the registration was issued; the renewal fee is AED 5,000 (subtracted from AED 7,500).
   • 2.3. There is a minimum subscription requirement for foreign funds approved by the SCA for promotion to private investors in the UAE mainland. The minimum amount is currently under review, with a single minimum subscription amount of AED 500,000 applicable to all foreign funds, regardless of domicile, expected to be set through forthcoming supplementary rules.
3. exemption

   The SCA has identified the following exemptions from the requirement for foreign funds to register with the SCA or designate a local promoter:

   • 3.1. ADGM and DIFC Fund Passage Regime. The general agreement (passive regime) between the SCA and the regulators of the DIFC and ADGM is not affected in any way by the new regulations. It remains in full force and may be used by fund managers registered with the DIFC and ADGM to promote funds established and registered with the DIFC and ADGM to retail and professional investors in the UAE mainland as long as the conditions of the passporting regime are met (see section 5 below ).
   • 3.2. reverse solicitation. Reverse solicitation remains an exemption that applies where a mainland UAE investor directly contacts a foreign fund manager or its promoter/distributor outside the UAE mainland to invest in a foreign fund. DIFC and ADGM fund managers may rely on reverse solicitations (subject to the conditions described herein), but only for funds registered with ADGM or DIFC. Foreign fund managers and promoters must provide supporting documents for reverse fundraising.
   • 3.3. Exempt Professional Investors. SCA has confirmed that marketing to certain professional investors, including federal or local governments, government agencies and agencies, or companies wholly owned by any of these, is exempt from the SCA registration and local promoter requirements otherwise applicable to foreign Fund marketing. This is in line with the usual approach taken by UAE federal legislation towards certain entities, particularly government-related entities. Marketing to other categories of professional investors requires SCA registration and use of local promoters as described in Section 1.1.
   • 3.4. listed funds. As stated in the Rulebook, Listed Funds are exempt from the promotion restrictions described in Section 1 above.
4. Transition arrangements for retail funds sold before 1 February
   • 4.1. retail fund. The new rules explicitly market foreign funds to retail investors that are (a) registered with the SCA for retail promotions prior to the new rules and (b) are subject to binding promotional contracts after February 1, 2023 that may continue to be promoted to Retail investors in the UAE mainland by 30 June 2023 or the expiry of the relevant promotion contract, whichever is earlier. This is subject to a pro-rated registration renewal fee. In addition, foreign funds targeting retail investors previously registered with the SCA may instead apply for registration with the SCA to market to professional investors, in which case retail investors in the UAE mainland need not be previously approved for redemption among such foreign investors funds that repatriate their interests in such foreign funds.
5. DIFC and ADGM
   • 5.1. Through the Passport System, foreign funds registered with DIFC and ADGM and managed by fund managers registered with DIFC and ADGM can contact their applicable supervisory authority for inclusion in the passport register, and the applicable supervisory authority will notify the SCA. The SCA will then confirm the registration of the DIFC or ADGM fund for promotion in the UAE mainland within a maximum of three working days. The Passporting regime applies to the marketing of ADGM or DIFC registered funds to retail and professional investors in the UAE mainland (but retail marketing must meet certain conditions, including the appointment of a SCA regulated custodian).In fact, since the release of the new regulations on January 16, 2023 to March 22, 2023, there have been five Passport Investment FundBoth are registered with DIFC.
   • 5.2. DIFC and ADGM funds can submit applications directly to the SCA, rather than relying on the prevailing regime, to register promoters licensed by the SCA to promote to professional investors for promotional activities in the UAE (as with foreign funds within ADGM or DIFC) registered outside will be registered with SCA).