As the temporary grace period for the promotion of foreign funds to UAE retail investors has come to an end, international law firm Simmons & Simmons analysed how to access the UAE retail market in the future.
Last year, the Securities and Commodities Authority, the financial services regulator of onshore UAE, issued its Decision No. 4/RM/2023 prohibiting the promotion of foreign funds to retail investors.
The SCA allowed a temporary grace period for foreign funds already registered for public offering. The grace period, initially set to end on 30 June 2023, was extended until 31 March 2024.
The promotion of foreign funds to certain defined “Professional Investors” remains unaffected.
The law firm’s partner Muneer Khan and managing associate Sami Ben Dechiche highlighted in a briefing note on 1 April that funds established in the DIFC or ADGM, including PCCs or Incorporated Cells of an ICC, may be passported to onshore UAE.
However, public funds in either jurisdiction are required to appoint an SCA-licensed custodian in order to be passported.
In relation to professional investors, the same solutions as for retail investors exist for asset managers.
In addition, it is still possible to promote foreign funds to professional investors in the UAE, subject to compliance with the relevant regulatory regime depending on the jurisdiction.
Simmons & Simmons further said foreign funds may be promoted to professional investors in onshore UAE, subject to (i) registration of the foreign fund with the SCA, and (ii) appointment of an SCA-licensed promoter.
Specific requirements exist depending on the type and home jurisdiction of the foreign fund.
Foreign funds may also be promoted to professional investors in ADGM and the DIFC via authorised firms, with the appropriate financial services license. Different exemption regimes in each jurisdiction may apply.
Funds established in either jurisdiction of the UAE (onshore UAE, DIFC or ADGM) may be passported to the other jurisdictions, allowing wider access to investors. The SCA has recently confirmed that the passporting regime with the financial free zones (DIFC and ADGM) remains fully applicable.
In light of the end of the temporary grace period, the SCA has confirmed that it will continue to honour the UAE funds passporting regime, the law firm briefing note continued.
However, the SCA has at the same time indicated that it is monitoring the use of the passporting regime by funds domiciled in the DIFC and ADGM and that passporting must not be abused to prevent the development of a healthy onshore UAE funds ecosystem.
Simmons & Simmons concluded: “It remains to be seen how the international funds and asset management industry will continue to access the UAE retail market. If it becomes too difficult or costly, some asset managers may shift their focus away from the onshore UAE retail market altogether. However, we are hopeful that various solutions will continue to emerge, including feeder fund platforms, which can provide an efficient and cost-effective solution for retail investors to retain a diversity of fund choice and avoid concentration risk.”
To read the full briefing note. click here.
