The new regulatory regime is good news for investors, distributors and investment fund companies. Although few observers of the UAE’s funds industry are prepared to comment publicly on the new system in development, largely because a number of details have yet to be finalised, the early indications are that it will be a very positive development.
The UAE is unusual in that it includes two distinct and separate regulatory jurisdictions. The Dubai International Financial Centre (DIFC) handles offshore business, and is regulated by the Dubai Financial Services Authority (DFSA). The quality of the regulatory environment is widely – and rightly – seen as one of the DIFC’s strengths. However, much of the regulatory action in the country has taken place outside the DIFC – and it is here that the authorities are moving to clarify and strengthen the regulations that govern investment funds (and much else).
The basic requirement will be that banks that are regulated by the Central Bank of the UAE and independent financial advisers can only distribute funds that have been registered with the Emirates Securities & Commodities Authority (ESCA), whose remit is being extended so that it more clearly covers investment funds. Fund companies will also be able to distribute their products through wrap and bancassurance offerings, a move which I think will be positive for some of the international life companies as asset management companies are likely to be more active in promoting their funds through these platforms.
As it stands, some of these companies are receiving as much as 60% of their new business from life platforms and I would expect this to increase even further under the new regulations. Another crucial aspect of the regulations is that the minimum size for private placements will be substantial: some industry insiders suggest that $2.7m is the level being mooted. However, this is just a rumour and we will not be fully aware of the final details until the legislation is published in a few months.
In my opinion, these regulations are long overdue. There have been some unusual practices going on in the past:some financial advisors have been operating under the licences of other licensed companies and have been caught out and fined. It’s worth remembering that these are developing markets and it’s not surprising that they fall behind when it comes to regulation, so this is all for the greater good. Over time, it is reasonable to expect that other GCC countries will seek to develop regulations for their domestic funds industries that are, at least in general terms, consistent with those of the UAE, so will become easier for international fund managers and international life companies to operate from regional offices.
Going forward, I would certainly like to see a Ucits-style passporting system implemented across the GCC, instead of separate regulations for each of the key markets. Only time will tell where these new UAE regulations may take us.
