The regulatory landscape for UAE financial advisers is barrelling into the 21st century.
Client outcomes and tighter compliance are on the agenda, with the goal of kicking outdated firms out of the market.
The Securities and Commodities Authority (SCA) published its ‘Regulations Manual of the Financial Activities and Status Regularization Mechanisms’ on 9 May 2021, giving a comprehensive guide on how to get a licence and conduct business in the country.
The handbook consolidates and restates the existing licence-specific rules and regulations and has put 36 existing SCA-registered financial advisory firms on a one-year compliance deadline ending 9 May 2022.
Firms must abide by six areas including honesty and integrity; skills, due diligence and care; good behaviour; dealing with SCA; effective administration; and compliance.
It also has tightened rules around any potential SCA applicants.
From a technical perspective, the changes will affect those entities that operate on a cross-border basis into the UAE. In addition to changes regarding licensing and promotion, the rulebook provides clearer guidance from an operational and substance perspective for those considering their business activities in the UAE.
So, International Adviser spoke to several firms to find out what it will actually mean in practice.
Muneer Khan, partner at Simmons and Simmons Middle East, said: “The introduction of SCA’s rulebook seeks to update and consolidate the previous regulatory framework that had developed in an iterative fashion over the last 20 years. The new rulebook is the result of the efforts of SCA to provide an accessible guide to those seeking to conduct business in or from the UAE.
“Its entry into force on 9 May 2021 had been preceded by the issuance of a draft rulebook in 2020. The draft rulebook was subject to comments by stakeholders in the UAE and it is evident that SCA has taken on board a number of these comments.
“In addition to the consolidation efforts and ease of use sought within the rulebook, it is also apparent that SCA strives to modernise its approach to regulation in line with global best practice and this is reflective in various sections of the rulebook.”
Tom Bicknell, partner at Pinsent Masons, said: “The new rulebook provides a much more comprehensive framework for how to get licensed and conduct business in the UAE. For most existing licence holders, there is an ability to grandfather over and new applicants will have clarity on how they do so.
“One big change is the new category five licence, which covers financial advisory and promotion. This category does not contemplate the establishment of a new entity to hold the licence, only an existing licence holder, either from SCA or a foreign regulator, are allowed to hold a licence through a branch.
“It is unclear what the intention is here but certainly it would seem to preclude new market entrants establishing a company to hold the licence, they will need to be licensed in another jurisdiction then branch in.”
It may not yet be a case of ‘adapt or die’ – but SCA’s updated handbook is looking to achieve a transparent finance industry at a time where client needs are becoming paramount.
Sean Keheller, chief executive of Mondial Dubai, said: “The rules are clear. They are described as a regulations manual with enforcement provisions.”
He added that clients will want a regulator “open to complaints” and “for the industry rules to follow”.
Nigel Green, chief executive of Devere Group, said: “The SCA’s activity is making it more and more difficult for smaller companies to gain licences. The new rules for licensees will allow for institutions only.
“As such, every company has to scale up – there’s really no choice. Size does matter. It’s becoming increasingly obvious that SCA wants larger, well-resourced, well-regulated companies with a track record of best practice and governance.
“This approach will contribute to strong merger activity in the UAE and advisers leaving smaller companies for the security and greater opportunities of larger ones.”
Hannah Greenwood, managing director of Finsbury Associates, said: “Without one overarching regulator in the UAE for financial advice, it is sometimes difficult for clients to understand their protection when it comes to advice they receive.
“The tighter regulations that are being brought in by SCA will help to ensure that the quality of advice that is provided by SCA firms improves and is therefore a positive step and good news for both the industry and clients.”
In 2020, following what felt like years of speculation, the UAE government said that the Insurance Authority (IA) and the Securities and Commodities Authority (SCA) will merge.
But shortly after, the IA merged with the Central Bank of the UAE, and now, the SCA changes mean that the proposed merger with the IA may be off the table.
Pinsent Masons’ Bicknell said: “An IA-SCA merger looks to be off. There is potential for an SCA-Central Bank merger, but this seems unlikely given each has a large well-established remit.
“That said, we could see one super-regulator where all the financial regulators are consolidated into the one authority.”
Green said: “The reduction of regulatory crossovers and dealing with a single regulator will be advantageous and more efficient for firms. At this stage, the timeframe remains unclear but, as ever, we watch with interest.”
Keheller said: “The IA licensees have side-stepped into the UAE Central Bank fold for now. Whether this is only to target actual insurance companies and the regulation of balance sheets, who knows?
“It remains awkward that IA brokers and SCA consultants say they do the same thing- but they do so under different licences.”
The UAE regulatory landscape has changed dramatically over the last few years from BOD49 to this latest handbook update.
But what does the future hold?
Devere Group’s Green said: “The UAE regulatory landscape over the next five years will continue to evolve at a rapid pace to meet the shifting market conditions, government policy agendas and innovation.
“Moving forward, we can expect the newer, dominant regulatory themes to be around fintech, ESG and societal issues, the use of data, and emerging technologies.”
Finsbury Associates’ Greenwood said: “I believe at this time the UAE regulatory landscape is a bit uncertain, however what I would like to see is an overarching regulator with defined rules for all firms providing financial services.
“This will ensure that all firms provide quality advice and clients feel more confident about the advice they are being provided.”
Bicknell added: “After a relatively long gestation period, we are now seeing a consistent flow of new rules both from SCA but also the Central Bank. There is a lot of thought behind these as opposed to them being ‘reactive’; the next 12-24 months will be a state of flux as the market and regulators fully understand and bed down these rules.
“In parallel, we will see an increased focus on financial technology both in terms of supervision but also development, the regulators will take an increased role in both. However, at the two-to-three-year mark. I think we will see more stability and business as usual from regulators.”