In November 2020, the UAE passed legislation to allow foreign investors complete ownership of a business.
Previously, foreign nationals looking to set up shop in the UAE needed to have local sponsors and were limited to holding a maximum 49% share in a “limited liability company”.
Those wanting to acquire the remaining stake had to apply to their Emirate, which decided on a case-by-case basis.
International Adviser spoke to Pinsent Masons, Mondial and AHR Private Wealth to discuss how the change will affect the financial advice market.
Reaction
Sean Kelleher, chief executive at Mondial Dubai, said that “waving goodbye to the last barrel of oil” is a phrase “doing the rounds amongst Emiratis”.
“A new economy needs to be built,” he said.
The past 50 years saw the UAE very much take charge and make unilateral decisions and changes, but Kelleher expects the next 50 years to be different.
“With that as background, financial services should expect massive and rapid change. Its illogical to expect an economy committed to change to ignore our space.
“To attract investors, the ability to buy and sell companies needs to be more liquid. The ability for anybody to buy and control, and to sell at will is critical to liquidity.”
Daniel Dickinson, chief executive at AHR Private Wealth, added: “We think this is a really positive move by the country’s leadership, as it will attract more businesses to locate themselves in the UAE.
“With the country so well placed geographically, and benefitting from a favourable tax environment, allowing full foreign ownership removes the final hurdle as to reasons why businesses may not have wanted to establish in the UAE previously.”
Impact
Under the amended law, not every business will be able to be fully owned by foreign nationals, as there are some companies that can be excluded according to decisions taken by the UAE cabinet, as well as those that are either wholly owned by federal or local governments or their subsidiaries.
At the moment, there has been no official announcement that financial services will fall under the legislation.
Tom Bicknell, partner at law firm Pinsent Masons, said “At this stage it seems unlikely, however we will start to get some clarity in the next few months. I would say that it will lead to increased foreign investment into other areas of the economy which will have a knock-on effect for the advisory market.
“If it does end up applying to Securities and Commodities Authority-licensed businesses then yes, we would anticipate a material increase in foreign investment interest.”
Dickinson added: “Foreign ownership has always been available in the financial free zones, but the question now is whether it will extend to the regulators issuing onshore licences.
“Alongside this, businesses moving forward will need to decide whether owning a business without the benefit of a local partner makes sense.
“More investors may enter the market in partnership with established firms if full ownership is possible.
“Ultimately, when it comes to investments, the fewer moving parts there are the more comfortable potential investors are with entering into a market. With a clear legal framework, more investors will see the UAE as a hospitable environment.”
M&A uptick?
If the ownership rules do apply to the financial advice market, there could be an influx of money into the UAE.
This could be M&A deals or new businesses.
Bicknell believes there will be more acquisitions as “it is a common path for international advisories to take a cornerstone or controlling interest in an existing local business that is established and has a good network of relationships in the market”.
“The regulators are generally more encouraging of this approach as the market is still pretty fragmented in terms of a lot of small cap participants, so they are not so quick to green light new market entrants,” he added. “We could also see consolidation being driven by this.”
Dickinson said: “We think there may be an increase in M&A activity, but the establishment of a new firm is still extremely capital intensive and the barriers to entry are becoming more challenging to meet.
“AHR Private Wealth’s entry was assisted by the presence and knowledge of a local partner, as the legal system can be a complex arena to navigate. It won’t be made any easier via full ownership, as the same establishment requirements will need to be met without local support.”
Future of the advice space
With many changes taking place alongside business ownership, including regulatory mergers and laws around inheritance, the UAE is making itself more attractive.
But this could be hit by a potential wealth tax in the next couple of months to pay for the coronavirus debts.
So, what do these changes mean for the future of the advice market?
Kelleher said: “I think it will sharpen the focus on the quality of regulation.
“Expect foreign companies to come in and say ‘this is our standard’- and the UAE’s reaction is more likely to be ‘well that’s ours’. It certainly will not be a lowering of standards, as that will not attract the foreign corporate powers.”
Bicknell added: “Until we know if it applies it is unclear whether there will be any indirect effects from as a result of investment into other businesses.
“Overall though, I think we will start to see some more certainty coming from the UAE financial regulators after a few years of flux as new regulations are released and implemented.
“More certainty will give rise to investment into the market and allow for more longer-term planning.”
