On March 13, 2013, the UAE Securities & Commodities Authority (the SCA) issued amendments (2013 Amendments) to the investment funds regulations which govern the establishment, management and promotion of local funds, and the promotion of foreign funds in the UAE.
The UAE investment funds regulations (the SCA Regulations) came into force on August 27, 2012, heralding a new era of regulation for the UAE investment funds industry. While the introduction of the SCA Regulations strengthened the legal and regulatory framework in the UAE funds industry, unlike other sophisticated jurisdictions, there were no exemptions granted to investment funds being offered on a private-placement basis to sophisticated investors, such as financial institutions and high-net-worth individuals.
Prior to the 2013 Amendments, the SCA Regulations provided that all foreign funds that are offered on a public or private basis to investors in the UAE must obtain the approval of the SCA and must be offered by a local promoter licensed by the UAE Central Bank or the SCA or, in certain circumstances, by a representative office of a foreign company in the UAE. This ultimately resulted in an increase of cost, and time, in placing foreign funds within the UAE.
Amendments to the SCA Regulations
The 2013 Amendments have relaxed the rules on the offering of foreign funds to investors in the UAE. Under an amendment to Article 2 of the SCA Regulations, foreign funds that are privately placed only with the following categories of investors in the UAE are exempt from the SCA Regulations:
- investment portfolios owned by federal or local governmental agencies;
- institutions or entities whose purpose is to invest in securities, provided that such institutions are acquiring the fund interests for their own account; and
- investment managers with discretionary management authority.
Foreign funds may still be offered on a private placement basis to investors in the UAE who do not fall within the above categories, provided that such private placements are approved by the SCA and are made by a local promoter licensed by the Central Bank or the SCA. The minimum subscription amount would need to be AED 500,000 per investor or AED 1 million per investor for a fund established in a “free-zone” outside of the UAE (e.g., the Cayman Islands). The SCA Regulations, as amended, also allow a representative office or branch of a foreign company to act as a local promoter provided that any promotion in the UAE is made on a private placement basis to institutions only and subject to a minimum subscription amount of AED 10 million per investor. The SCA Regulations do not appear to prohibit the promotion of foreign funds to UAE investors where such promotion occurs entirely outside of the UAE. Furthermore, the offering of foreign funds to UAE investors on a reverse-solicitation basis (i.e., where the investor initiates the offer) is unlikely to be caught by the SCA Regulations.
The 2013 Amendments signal the SCA’s recognition of certain qualified investors who possess the necessary sophistication and experience to make well informed assessments of investments. This new private-placement exemption will have a substantial positive impact on the marketing and promotion of foreign funds in the UAE and will be seen by many as a significant move towards promoting the growth of the UAE funds industry.
The 2013 Amendments came into force upon its publication in the UAE Official Gazette on 28 April 2013.