The UAE is making efforts to strengthen the legal regime regulating local and foreign investment funds with its new funds regulations (UAE Securities and Commodities Authority "SCA" Board Decision No.  of 2012) which came into effect in late August.
The regulations regulate the establishment and operations of local funds and the marketing and promotion of foreign funds, whether by way of public offering or private placement. The new regulations are a large step in the right direction but still leave some areas not fully covered.
On the positive side, entities marketing foreign funds in the UAE now have a lesser level of regulation when the units are being promoted by way of a private placement than they do for a public offering. There was previously an obvious lack of any private placement exemption for offerings of foreign securities in the law. However, the SCA makes it clear that no entity may promote foreign funds in the UAE unless that entity has a Central Bank or SCA license or has established a representative office in the UAE. Foreign promoters flying into the UAE for meetings will no longer be tolerated if the new regulations are enforced firmly by the SCA. Entities who have been marketing foreign funds in the UAE without having any license here will need to be aware of the new regulations and seek advice to ascertain what type of license they should now be applying for.
Where the establishment of local funds is concerned there still remain questions. The new regulations seem to suggest that local funds may only be established as companies in accordance with the Commercial Companies Law. There is no separate fund vehicle provided for in the Commercial Companies Law at this stage and companies are not permitted to have more than one class of shares. The result is that it seems funds established in the UAE may not have a structure that is consistent with funds structures commonly utilised in more developed funds markets and unit holders may simply be shareholders with full voting rights and control over the company. Careful consideration needs to be given to whether there is a practical way to structure a local fund in the new environment.
More details on the new regulations can be found here.