As reported last week, earlier this summer the Emirates Securities and Commodities Authority published a notice on its website, detailing a series of fees it plans to introduce for the registration of mutual funds and to gain a license to distribute them.
Under the new regime, which will become law once published in the local Gazette, fund distributors will have to apply for and pay for a licence to sell mutual funds and will also have to register each fund they wish to sell with the authority. This could cost up to AED35,000 (€7,000, £6,000 $9,500) in total for the registration of just one “foreign” fund.
The introduction of a fee regime for the distribution of funds in the United Arab Emirates is not unexpected, with ESCA first announcing its intention to do so in August last year. Industry antipathy towards the fees is not new either – in October last year research revealed 33% of the asset management industry believed new rules around the distribution of funds in the UAE would have a negative impact.
“Fees too high”
International Adviser spoke to a number of influential participants within the asset management industry based in the UAE, some of whom asked not to be named, and the general consensus of opinion was that the fees were too high – to the point where they could damage the existing industry.
It is understood that ESCA is currently listening to feedback from asset management companies and banks, which are the main distributors of funds in the Middle East, although it is not anticipated the regulator will make any significant amendments to the regime.
Peter Duke, sales director at Fidelity Worldwide Investment’s Dubai office, said it is likely ESCA will have been surprised by the reaction to the new fees.
“Under the terms of the law, there will be no impact on asset managers as the promoter is responsible for registering the fund, but in practice these fees will probably end up being passed on to the asset managers or even the end investors,” said Duke.
“This could mean either the subscription fees will go up or that investors end up with a more restricted choice because the promoter chooses to offer less funds. We do have a few concerns with this new regime.”
This view was echoed by another sales manager who did not want to be named, who suggested the introduction of the high fees could result in a move by some banks from fully open architecture products to guided architecture, with a limited choice of funds.
There is also the possibility the new fees will put some financial advisers off selling mutual funds directly through asset management companies and that they will instead sell funds only through life company products as this falls outside ESCA’s remit.
However Daniel Rudd, head of Middle East & North Africa wholesale for HSBC, said anyone choosing not to become licensed by ESCA is perhaps being “short-sighted” as it is his belief (as previously reported) that in the coming years ESCA will become the main retail regulator in the UAE.