UAE regulator overhauls regimes for foreign and domestic funds

The regulator announced new restrictions on the ability of foreign funds to market to retail investors in the UAE. The Foreign Funds Promotion Regulation, which came into effect on 17 January, discontinued the registration of foreign funds except for marketing to professional investors and market counterparties.

The SCA has so far approved around 2,000 foreign funds to promote and offer their funds through licensed promoters in the UAE. Licensed promoters can continue to use existing promotion arrangements until 1 June 2023, or until such arrangements expire – whichever is earlier. Tom Bicknell of Pinsent Masons said: “Foreign funds and fund managers should now investigate their options for complying with the new roles, including the establishment of feeder funds and other similar structures.”

Meanwhile, new domestic fund rules have transformed the existing system. The New Fund Regulations introduced new categories of fund structures, including ‘family funds’, in which the ownership of a local fund’s units is restricted to one or more people in a single family, and ‘self-managed funds’, when two or more people or corporations establish a local fund. It also established new categories of specialised funds like real estate development funds, ESG funds, capital protection funds, charity investment funds and precious metal funds.

The regulations expand the categories of financial arrangements that are not considered to be funds. Joint bank accounts; employees share options schemes; insurance and pension contracts; timeshare properties; government funds; and joint investments held between a parent company and its holding, subsidiary and sister companies, are now exempt from fund regulations.

The measures also reduce the capital requirements from AED 50 million to AED 1m for fund management companies, from AED 5m to AED 1m for fund administration companies. The regulations allow 100% foreign ownership of such companies. At the same time, registration for private and private funds has been fast tracked, meaning that the application process should take five working days and 10 working days respectively. The SCA’s final decision on applications for new types of funds will be issued within 20 working days of the date of submission.

Bicknell said: “The near overnight closing out of funds being able to market into the UAE to retail investors has come as a shock to the wealth market. However, the SCA has been signalling for some time that it is serious about achieving a material increase in the amount of money managed domestically and in turn reshape the UAE’s fund sector.”

He added: “Taken in this context the restrictions placed on foreign funds makes sense and is also aligned with the position across most of the other GCC states that only allow for marketing to professional investors. The domestic funds industry should welcome the news – indeed, there is a clear mandate to make things easier for industry participants who are serious about developing their offering on the ground.”