The UAE’s Securities and Commodities Authority (SCA) has issued new regulations that enhance the country’s investment funds legal framework and promote the distribution of foreign funds locally.
The Investment Funds Regulations introduce new fund structuring options, including Family Funds and Self-Managed Funds, and permit full foreign ownership of companies carrying out fund management activities. Share capital requirements for fund management and administration companies have also been reduced, while the registration process for public and private funds has been expedited.
Similarly, the SCA now permits the establishment of funds with a new investment policy, and new categories of specialized funds have been introduced. These regulations limit the promotion of foreign funds in the UAE to private distribution to professional investors or market counterparties. Furthermore, promoters of foreign funds must amend their contractual arrangements with managers of foreign funds to comply with the provisions of the new Investment Funds Regulations.
There are several sets of regulations, but all fall under a single regulatory framework as stated in the introduction.
Notable Changes in the UAE’s Investment Funds Legal Framework
New Options for Structuring Funds Introduced
The Investment Funds Regulations now allow for the creation of new types of funds, including Family Funds, which can be owned solely by one or more family members who are the true owners of the units, and Self-Managed Funds, which can be established by multiple individuals or legal entities.
In addition, these regulations have relaxed foreign ownership restrictions, enabling full foreign ownership of companies that engage in fund management activities. This change falls in line with the UAE government’s objective of aligning local business practices with international standards.
Marketing of Units of Foreign Funds in the UAE
It is important to note that the Investment Funds Regulations have imposed certain limitations on the promotion of foreign funds in the UAE. The promotion of foreign funds in the UAE is now restricted to private distribution among professional investors or market counterparties according to Resolution No. 13/RM of 2021.
Moreover, promoters of foreign funds in the UAE must modify their contractual agreements with foreign fund managers to comply with the provisions of the new Investment Funds Regulations. The SCA may provide a grace period of up to six months starting from 1 January 2023 for promoters of foreign funds to continue fulfilling their obligations under existing contracts or until the contracts expire, whichever comes first. During this transition period, the registration of the foreign fund’s units should be renewed, while the relevant fees should be paid to the SCA.
Key Changes Under the New Funds Regulations
·Share capital requirements for fund management companies are reduced from AED 50 million to AED 1 million, while those for fund administration companies have dropped from AED 5 million to AED 1 million.
·The SCA must issue its decision regarding public fund registration within ten (10) business days from the date of submission of an application, and within five (5) business days with respect to private funds.
·Applicants are now allowed to propose the establishment of funds with a specific investment policy or type that is not necessarily regulated under these regulations. The SCA must review such application and issue its decision within twenty (20) business days.
·These regulations introduce new categories of specialized funds covering areas such as real estate development, precious metals, direct financing, ESG, capital protection, protected cells, charity investment, and commodities investment.
·The SCA has expanded the list of arrangements exempted from these regulations, including joint bank deposits/bank accounts, insurance or social security/pension contracts, intra-group joint investments, timeshare and other property sharing arrangements, employees share option schemes managed by the issuer or a group company, investment funds established by either federal or local government bodies, and any other arrangements that the SCA may add in the future.
The implementation of these new funds regulations will have a significant impact on the UAE’s investment funds legal framework and is expected to promote and incentivize the establishment of funds that are domiciled in the country.
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