Introduction
The United Arab Emirates, and Dubai in particular, an affluent, tax efficient country that rests geographically between East and West, has become a leading financial centre and destination for asset and fund managers to raise capital from professional investors who reside in the Emirates. It is no surprise that this increased appetite amongst asset and fund managers is coupled with the net migration of millionaires – expected to outpace any other country – to the United Arab Emirates
Kingsbury & Partners with its experience in capital markets, capital raising, and distribution often speaks with asset managers who are looking for routes to market in the UAE. As these managers scramble to get a slice of the pie, many are not immediately aware of the restrictions of foreign funds to investors in the UAE.
To assist fund and asset managers, Kingsbury & Partners has co-written this guide with Eugenie Levy, Principal – Financial Services & Regulation at Support Legal, a UAE-based law firm, about foreign fund marketing in the UAE and how to comply with the latest Securities and Commodities Authority’s registration process.
Onshore UAE [1]
To strengthen the local funds market, the Securities and Commodities Authority (“SCA”) issued Decision No. (02/RM) of 2023 and Decision No. 4/RM/2023, restricting the promotion of foreign funds onshore UAE. According to these decisions, the promotion of foreign funds to retail investors is prohibited. Furthermore, foreign funds are no longer exempt from the SCA’s financial promotion regime when targeting “Professional Investors”.
[1] Onshore UAE refers to the United Arab Emirates, excluding the ADGM (Abu Dhabi Global Market) and DIFC (Dubai International Financial Centre) financial free zones
How can Foreign Funds be Marketed to “Professional Investors” Onshore UAE?
Despite the tightening of the foreign fund marketing regime, it remains possible to market foreign funds to “Professional Investors” onshore UAE subject to certain conditions.
Registration with SCA
Foreign funds which are registered with SCA may be marketed on a private placement basis to “Professional Investors” onshore via an SCA-licensed “Promoter”. The minimum subscription amount for such funds is currently AED 500,000.
Reverse Solicitation Exemption
It remains possible to offer foreign funds on a “reverse solicitation” basis. However, such exemption is only available where the reverse solicitation is made on a cross-border basis – i.e. by a person located outside the UAE to persons located onshore UAE. For fund managers in the DIFC and ADGM, the SCA permits reliance on the reverse solicitation exemption but only for funds domiciled in those financial free zones.
It is important that the fund manager or promoter retains documentary evidence of any reverse solicitation.
Passporting Regime
Funds established in the DIFC or ADGM can be passported onshore to the UAE in accordance with the passporting regime. These passported funds may either have a direct investment strategy or act as feeder funds.
What is the Process for Registering a Foreign Fund with the SCA?
The registration process for a foreign fund with the SCA involves several steps:
- The foreign fund has to appoint a legal representative and enter into a distribution agreement with an SCA-licensed Promoter.
- The legal representative must register on the SCA’s online portal as the legal representative for the foreign fund.
- The legal representative submits an application for the fund’s registration and pays the associated fees.
- At SCA’s request, the SCA-licensed promoter provides an online undertaking to the onshore regulator.
- The SCA will review the application. The SCA has indicated that this process typically takes five business days.
- Once the application is approved, the foreign fund can be promoted on a private placement basis by an SCA-licensed promoter in compliance with the SCA Rulebook.
Fund registration must be renewed annually. The initial registration fee is AED 12,000, with an annual renewal fee of AED 5,000.
DIFC and ADGM
Unlike the SCA Rulebook, there is no formal exemption for reverse solicitation in the DIFC or the ADGM. However, genuine reverse solicitations, supported by documentary evidence, should not be subject to financial promotion restrictions in these jurisdictions.
Additionally, subject to certain conditions, foreign funds can be promoted in the DIFC and ADGM by appointing a locally licensed distributor. Additional requirements may apply depending on the type of fund, such as VC funds, credit funds, or property funds.
Conclusion
In conclusion, while the UAE offers attractive opportunities for asset and fund managers seeking capital from professional investors, navigating the regulatory landscape can be challenging. The recent restrictions on promoting foreign funds onshore highlight the importance of understanding and complying with the Securities and Commodities Authority’s rules. However, viable routes to market still exist, including private placements through SCA-licensed promoters, reverse solicitation, and the passporting regime for funds domiciled in the DIFC and ADGM. Kingsbury & Partners, in collaboration with Eugenie Levy from Support Legal, is committed to helping fund managers effectively navigate these complexities and successfully enter the UAE market.
If you are looking to raise capital, growing your presence in the UAE, or need assistance navigating the regulatory landscape, reach out to us at hello@kingsburyandpartners.ae
