The New Mutual Funds Regulations will significantly restrict the marketing of foreign funds (ie funds not set-up in the UAE and authorised by the SCA as domestic funds) if they are not registered.
The new registration fee being suggested for promoting a foreign fund to investors in the UAE is AED35,000, ($9,500, £7,200) for registration and AED7,500 ($2,050) for the annual registration renewal. The fees are fund specific and will be incurred for each new fund to be promoted in the UAE.
It is expected the fee will be levied on funds sold through wrappers and platforms, including the offshore bonds of international insurance companies.
An explanatory note provided to International Adviser about the planned changes, which was originally issued in July by the international law firm Simmons & Simmons, said the fee would be levied on “investment schemes linked with insurance contracts” if “investments of the funds raised from such schemes are directed to mutual funds”.
“The effect of this plan would appear to be that mutual funds forming the underlying investments of insurance-wrapped products promoted in the UAE will no longer be exempt from the need to be registered with the SCA and distributed by a locally authorised distributor,” the document states.
Tom Bicknell, senior associate at international law firm Clyde & Co said: “The obligation to pay the fee applies at the ‘local promoter’ level. On a plain-reading of the regulation this has the potential to capture the life companies as well as the foreign funds themselves.”
“If you are a fund manager offering funds through an insurer you didn’t previously have to pay a registration fee,” he said.
“Now if you have 200-300 funds that you offer through the insurer you will potentially have to pay the registration fee for each and every one, which may be prohibitive from an economic as well as a practical perspective.”
Bicknell believes the draft of the proposed regulations currently circulating in Dubai is the final version that will come into force when it is issued in the official gazette.
Not surprisingly the prospect of the new registration fee has triggered a debate within the financial industry as to who should ultimately pay it, and whether its implementation would lead to a sharp reduction in the number of funds available to investors.
International Adviser first reported a plan the SCA to introduce a series of fees for those who wish to register and distribute funds in the UAE back in August 2013 but these did not apply to funds which were part of insurance products, and the costs were generally passed on to the asset managers by the banks which sold the funds.
Bob Pain, chairman of international insurance company Investors Trust, said he believes a possible outcome of the new regulations could be that fund companies may close some of their funds to sales in the UAE, or reduce the number to just the large ones that can absorb the new cost.
He also said the draft rules left a number of questions unanswered.
“Are personalised portfolio bonds included? If yes, all the thousands of funds available in these products would need to be registered, who pays for the fees?
“Are mirror funds adopted by some life company’s products, as opposed to direct funds, to be included in this process?”
Muneer Khan, the partner heading the Middle East financial regulatory practice at Simmons & Simmons, said: “Following the SCA’s request for feedback on their proposed regulations, we are helping a group of firms to consolidate and provide feedback and seek clarifications in a coordinated manner and this is similar to what we have done in the past in a number of jurisdictions.
“We liaise regularly and closely with the SCA and other financial services regulators in the Middle East, often providing them with industry feedback and seeking clarification on existing and proposed regulations.”
Nigel Sillitoe, chief executive of research firm Insight Discovery said that as the proposed SCA fees are high compared to other countries it was inevitable that this will reduce the number of funds open to consumers.
“This is because an asset management company, which currently has 30 registered funds, will now only register funds which have the potential to be heavily marketed by their distributors.
“At least the SCA fees is a regulatory cost, therefore these fees can be offset against the fund, which, for very small funds is a negative as this could increase the TER,” he added.