Abu Dhabi Global Market releases plans to regulate service providers

Out-Law News | 10 Nov 2020 | 3:32 pm | 1 min. read

The Abu Dhabi Global Market (ADGM) Registration Authority has published a consultation paper outlining its plans to establish a regulatory framework for company service providers (CSPs) within the financial free zone.

The proposed CSP framework aligns with international best practice and follows a benchmarking exercise by the Registration Authority of regimes in jurisdictions such as the UK, Singapore, Bermuda, Guernsey, Jersey and the British Virgin Islands to determine the approach best suited to the ADGM.

The ADGM said the success and increasing demand for ADGM-registered special purpose vehicles (SPVs) had brought challenges and risks for those wanting to set up in the ADGM, particularly for entities without a direct connection to the United Arab Emirates (UAE) or the ADGM. The consultation paper has been published against the backdrop of the UAE's Economic Substance Regulations (ESR). ESRs are not unique to the UAE; they have been introduced across the globe in countries with no or nominal corporate tax rates in order to comply with international initiatives to combat harmful tax practices.

The proposed ADGM framework will make it mandatory for certain SPVs and foundations to appoint a CSP to ensure that the Registration Authority has a local contact or interface for these entities.

CSPs will also be subject to updated regulatory requirements, including adhering to compliance arrangements, maintaining a capital base of at least $25,000 (£19,000), and having adequate financial systems and human resources. CSPs holding or controlling client money will be required to comply with client money rules.

ADGM SPVs forming part of a corporate entity with a well-established presence in the UAE will be exempt from the CSP requirements. There will also be an exemption for SPVs that are wholly owned subsidiaries of entities exempt from obtaining a commercial licence; ADGM-incorporated firms with a physical presence in the free zone; persons authorised to provide financial services; and companies that can demonstrate a substantial UAE presence.

Similarly, foundations that can demonstrate that they have sufficient resources, expertise and staff in the UAE will not be required to appoint a CSP.

The framework will also allow the Registration Authority to impose appropriate penalties for breaches of the regulations, and enhance the registrar’s striking-off powers under the ADGM’s Companies Regulations. 

Existing CSPs wanting to engage in these activities under the new framework will have six months to transition; existing SPVs and foundations will have 12 months to comply; and new SPVs and foundations eight months to comply with the framework.

The consultation is open for feedback until 24 November 2020.