As reported, the Emirati Securities & Commodities Authority (ESCA) quietly and unexpectedly unveiled the long-awaited new rules at the end of July – four days after the start of Ramadan, and at a time of year when many Emiratis leave the UAE to escape August’s oppressive temperatures.
Among the new requirements is a rule that no foreign investment funds units are to be marketed within the UAE unless through either banks or investment companies licenced by the Central Bank, or companies "licensed for such purpose by ESCA".
Some experts caution that certain elements of ambiguity and uncertainty will continue to surround the new rules until ESCA eventually publishes an official English translation.
Meantime, no one yet seems to know when the resolution officially takes effect, beyond that it will, as an English-language statement on the ESCA website puts it, “enter into force on the day after its publication in the Official Gazette”.
What is clear, though, is that the UAE authorities are following through on what that ESCA statement quotes them as saying they set out to do with their new regulations, which is to seek to “boost the investment climate in the local markets, and help attract new investment and liquidity”.
“If you step back from it, you can see that this is a sort of natural evolutionary development for the industry, and the region,” says Nick Tolchard, head of Middle East operations for Invesco, one of the largest distributors of investment funds in the Gulf.
While the Dubai International Financial Centre (DIFC) has, like a number of other international financial centres in the Gulf and elsewhere, been successful at setting up a robust regulatory regime in a “free zone” space inside the UAE, Tolchard notes, it is hardly surprising that government officials with oversight for the larger Emirati area would want to develop robust, world-class regulations, and an equally robust asset management industry, that covered the country as a whole.
In particular, the regulations are seen as aiming to boost the respectibility and credibility as a financial centre of Abu Dhabi – the "other" major UAE emirate next to Dubai – which, like Dubai, has a stock market, but one that is significantly more regional.
Period of adoptation seen
Tolchard and other asset management experts say that the new rules will necessarily require companies currently active in the United Arab Emirates to adapt, and some – which either are not yet in the market or are there only tangentially, through third-party enablers such as regional banks – may find it more difficult or even impossible to come in.
However, it appears that investments held on life company wrappers are to be spared the need for separate UAE registration, which had been seen as a possible concern of life insurance companies during the 18 months or so that the government has been consulting with the industry about its plans for a new regulatory regime.
ESCA ‘took feedback’ onboard
Arwa Hamdieh, co-founder of the recently-formed Financial Services Association UAE, says it is clear that ESCA "took into account the feedback and comments pressented" by market participants in response to its original draft of the new regs, as it "incorporated several significant changes" in the just-published final version.
Even after the regulations are published in the Official Gazette, Hamdieh notes, there will be a "one-year grandfathering period" during which firms will have an additional window of opportunity to "further improve the regulation, and bring it closer to international best practice".
Her organisation expects to continue its dialog on behalf of its members in this regard, Hamdieh adds.
Boost to Qatar?
Some press reports have suggested the new UAE regulations could inadvertently hurt the country’s asset management industry by enabling its regional rivals, including Qatar, to attract businesses put off by the cost and burden of complying. However, Invesco’s Tolchard, who is actively involved in the company’s annual study of asset management trends in the Gulf, disagrees, noting that a robust regulatory environment modeled on Western structures is more likely to encourage the UAE’s development rather than hinder it.
What is more, he notes, the more robust regulations might, as some suggest, help the UAE in its four-year-long, thus-far-unsuccessful bid to be considered an "emerging" market rather than a "frontier" one by the MSCI Index authorities.
"The devil is still in the detail, in terms of process and cost and complexity [of compliance]", he adds. "We’re waiting to get a bit more on that.
"But if you stand back from this, it seems to mean that the industry is developing in the right direction, and from our perspective, it doesn’t change our commitment to the DIFC, but rather, it creates another area for us to look at in terms of opportunites for broadening our business in the UAE."
‘Welcome move’ says Gulf News
In an editorial published on its website on Sunday, the UAE-based Gulf News called the issuing by ESCA of new regulations for the funds industry a "welcome move" that was "long overdue".
"Investment is a risky business and fund management is a tricky one," it noted.
"Many investors have accused fund managers of mismanagement and cheating. When markets decline or things go wrong, investors lose money and faith, shattering their confidence.
"[ESCA’s] latest move will help regulate fund development, management, transfer and increase transparency and accountability of the fund managers, to ensure that none can walk away with other people’s money."
Global trend
The move by the United Arab Emirates to tighten up oversight of its asset management industry is part of a global trend, which many see as a reaction to the global financial crisis that began in 2008 and caused thousands of private investors around the world to lose significant sums of money in poorly conceived investments.
As reported yesterday, new regulations governing investment funds have just been brought into force in Singapore, as the regulator there looks to tighten up on standards there, by, among other things, raising the base capital requirements, and mandating that at least two representatives of the company with experience of the financial services industry live in the city/state.
