According to Aria Capital Management, a UK boutique investment manager with an office in Dubai which has recently met with the regulator, when the grace period ends any UAE resident retail client should only have funds registered with SCA offered to them.
The requirement is regardless of execution venue, be that a UK platform, an Isle of Man insurance bond, a recognised overseas pension scheme (Rops) op or a self-invested personal pension (Sipps).
“The key takeaway is that this affects all UAE residents – regardless of ‘wrapper’ or execution venue, wherever that may be domiciled,” Aria said in a note to clients.
“There is an enforcement regime to ensure the new regulations are implemented by affected parties,” it said.
“Clearly this has wide implications for product design for a range of providers,” said the fund house, which specialises in active, absolute return strategies and discretionary portfolio management services.
Fee costs
The new rules mean that funds which form the underlying investments of insurance-wrapped products promoted in the UAE are no longer exempt from the need to be registered with the SCA, and the requirement they be offered by a locally authorised distributor.
To be registered for promotion to investors in the UAE as part of investment schemes linked to insurance contracts, the funds will have to pay an initial fee of around AED35,000, ($9,500, £7,200) each and there will be a AED7,500 ($2,050) annual registration renewal charge.
The fees are fund specific and will be incurred for each new fund to be promoted in the UAE.
Supply impact
From Aria Investment Platform’s perspective, the company said, it would ultimately need to reflect the new regulations in the investment universe made available for general investment accounts for UAE resident retail clients.
This is in line with the general reaction to the new rules which many observers have noted is likely to sharply reduce the number of funds available to investors.
“From an operational perspective, this is relatively easily configured, but from a service or proposition perspective, it brings numerous complications,” Aria said.
New licences planned
From its discussion with legal sources and the regulator in the UAE, Aria also noted that the new mutual fund regime has been designed to dovetail in part with the new ‘Arranging and Promoting’ licence due in the coming weeks from SCA.
The SCA is currently consulting on a set of regulations, known locally as the FPARs, which would govern the promotion of financial products and the “arranging” of financial services in the UAE outside the financial free zones.
These proposals are far-reaching and would impose a heavy regulatory burden, if implemented.
Cross-border targets
According to an analysis by law firm Clifford Chance they would affect UAE-based firms carrying on cross-border activities into the UAE.
The new regulations are designed to fill a gap in the UAE investment services framework by introducing a general financial promotions regime and the concept of “arranging” activities.
The proposed rules contain a general prohibition on the promotion of financial products and the arranging of financial services without SCA approval. However, they only apply to investment services and would not cover banking and insurance activities in the UAE.
“The FPARs also impose a licensing regime for promoters’ and arrangers’ conduct of business standards, and give the SCA significant supervisory and enforcement powers to control promotion and arranging activities and impose sanctions for breaches of the regulations, Clifford Chance said.
Free zone impact
It added that it expected the new rules to have a significant impact on firms operating in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).
“These two financial free zones (FFZs), which have their own regulatory regimes, contain a significant number of investment firms which legitimately conduct promotional and arranging activities in respect of investment services with clients in the UAE,” it said.
“The FPARs appear to potentially constrain such activities by requiring dual licensing and imposing an onerous approval process.
“Given that the licensing and conduct of business standards in the DIFC and ADGM are at least as high as those imposed by the SCA, an exemption or passporting regime for FFZ firms would seem to be appropriate and proportionate,” the law firm suggested.
