The Securities & Commodities Authority of the United Arab Emirates has introduced a set of new requirements for foreign funds wishing to market their units in the UAE mainland (outside of the freezones). This e-bulletin looks at the details of the regulations.
The Emirates Securities & Commodities Authority (ESCA) issued Resolution No. 37 of 2012 on Investment Funds on 22 July 2012, following a period of consultation (the Resolution).
The Resolution represents a significant departure from the previous regime of "tolerated practices". Previously, the offer of units in a foreign fund to a limited number of known sophisticated investors in the UAE was tolerated without triggering any licensing and registration requirements with the UAE Central Bank. As part of these new regulations, the implementation of the new regime will see ESCA, rather than the UAE Central Bank, playing a much more prominent role in the licensing and supervision of investment funds in the UAE.
The Resolution will come into force on the day after its publication in the UAE official gazette.
Public placement vs. private placement
A foreign fund can be authorised by ESCA to promote its units to the public in the UAE, by public placement, using all promotion means available to it, provided that:
- it is subject to the supervision of a regulatory authority similar to ESCA; and
- it is licensed in its home jurisdiction to market its units to the public. ESCA has not issued a list of acceptable "peer" regulators yet.
If the foreign fund does not comply with these conditions, it can, in principle, only be authorised to promote its units by way of private placement, meaning that the promotion can only be made by direct contact with identified investors.
ESCA has reserved the right to dis-apply any conditions which are applied by the Resolution to public placements and the right to apply additional conditions to both public and private placements.
Minimum subscription amount by investor
The minimum subscription amount required from investors in a foreign fund which has been authorised for public placement is the minimum set out in the offering document of the fund.
The minimum investment per investor for a foreign fund authorised to market its units in the UAE by way of private placement is AED500,000. If the fund has been incorporated in a freezone outside of the UAE, the minimum subscription amount shall be increased to AED1 million. The Resolution contains some exemptions for investments under discretionary management mandates or related to periodic saving and investment plans.
Requirement for a local promoter
A foreign fund wishing to promote its units in the UAE, either by way of public or private placement, must appoint a local promoter. The local promoter must be either a bank or investment company licensed by the UAE Central Bank, or a company licensed for such purpose by ESCA. It appears that, in case of a private offering, the promotion can also be undertaken through a representative office in the UAE of an entity connected to the fund (or potentially its founder or operator), provided that the promotion is directed at institutional investors only who are required to invest at least AED 10 million each in the fund.
Role of the local promoter
The local promoter will act as an intermediary between the foreign fund and unitholders to whom the units are promoted in the UAE. The promotion of the units in the UAE may only be undertaken by the local promoter.
The local promoter will have the following responsibilities:
- Selection and monitoring: exercising due care in the selection of foreign funds and continuous monitoring of the performance of such funds in such manner as guarantees the protection of the unitholders' investment;
- Records: keeping a register of units distributed by it;
- Offering document: providing subscribers with a copy of the foreign fund's offering document before the subscription is made;
- Availability of daily price and means for inspection: ensuring the availability of a daily price or value for the fund's units (or as provided in the offering document) and providing suitable means to enable investors in the UAE to have access to such information;
- Access to material information and financial statements: establishing suitable means to enable investors in the UAE to have access to disclosures, material information and financial reports and statements issued by the foreign fund within the period when those statements are made available to the unitholders in the foreign fund's home jurisdiction;
- Proof of subscription: providing subscribers with evidence of their subscription (including, the units) and the document which will enable them to exercise all rights of ownership over those units;
- Distributions: making the distribution of dividends to unitholders and/or the redemption of units by unitholders in accordance with the foreign fund's documents, unless such tasks have been entrusted to another UAE entity by the fund's sponsor;
ESCA approval does not constitute a recommendation to invest by ESCA: ensuring that subscribers, prior to subscribing for units in the foreign fund, are being informed of (and sign to agree) the following:
- ESCA approval of the fund's promotion in the UAE does not constitute a recommendation to purchase or invest in the fund by ESCA;
- ESCA is not responsible for the failure by any party or parties associated with the fund in the performance of their duties and functions;
- ESCA is not responsible for the accuracy and soundness of the information and details contained in the offering memorandum; and
- responsibility for the accuracy of information and the performance of duties and functions under the offering document lies with the parties mentioned in the offering document.
The local promoter will be required to file with ESCA the pro forma application form for the promotion of the foreign fund's units in the UAE, with all required attachments. ESCA will issue its decision to approve or reject the marketing of the foreign fund in the UAE within 30 days of receipt of a complete application form.