Onshore UAE

The Board of Directors' Chairman Decision No. (9/R.M) of 2016 Concerning the Regulations as to Mutual Funds (the New Funds Regulation) recently came into force and is now the main piece of legislation governing the marketing of funds onshore in the UAE. It repeals the previous funds regulation (SCA Board of Directors Decision No. 37 of 2012 concerning the Regulations as to Mutual Funds) (the Original Funds Regulation)). Significantly, it also repeals any amendments to the Original Funds Regulation and therefore SCA Board Resolution No. 13 of 2013 on Amending the Regulation of Investment Funds (the Exemption Resolution) is also repealed.

Under the Exemption Resolution, foreign funds could be marketed to the following categories of persons without having to comply with the requirements of the Original Funds Regulation: (a) financial portfolios owned by local and federal authorities; (b) companies whose main objective is, or one of whose main objectives is, to invest in securities; and (c) discretionary investment managers. The position has now changed and under the new regime the only exemption is the promotion of foreign funds to (a) funds established by federal or local government agencies or (b) any companies fully owned by federal or local government agencies. Where this exemption does not apply, Article 35 of the New Funds Regulation will need to be complied with. Article 35 provides that no foreign fund may be promoted in the UAE unless: (a) the fund is registered with the Securities and Commodities Authority (SCA) and (b) a contract has been entered into with a locally licensed promoter to promote the fund. It is also important to note that, while the Original Funds Regulation was silent on reverse solicitations, the New Funds Regulation explicitly provides that it shall not apply to reverse solicitations.

Potential new regulations

It is worth noting that draft regulations entitled "Draft Promotion of Foreign and Private Funds 2015" published on 20 November 2015 provide for an "accredited investor" exemption (although that term is undefined) so should serve to broaden the categories of exemptions once again if implemented in substantially the same form as the draft. A definition of "Accredited Investor" was set out in a previous draft of the New Funds Regulation as follows: "investors who are capable of management of their own investments" and includes the following: ''(i) federal or local government authorities; (ii) international authorities and organisations; (iii) persons licenced to carry out commercial activities in the UAE provided that such activities include investments; (iv) investors whose annual income is not less than Dirhams 1 million per annum; (v) investors with a net worth, excluding primary residence, of Dirhams 5 million". This definition has been included in the New Funds Regulation but it applies in respect only of domestic funds and not foreign funds. It is hoped that the "Draft Promotion of Foreign and Private Funds 2015" regulations will, when enacted, apply this "accredited investor" exemption to the promotion of foreign funds, though clearly the SCA may decide to amend the wording or not bring these draft regulations into force.


The Abu Dhabi Global Market (ADGM) is the new financial free zone in Abu Dhabi located on Al Maryah Island. The ADGM has established its own financial services regulatory framework, which is set out in the Financial Services and Markets Regulations 2015 (FSMR) (as amended by the Financial Services and Markets (Amendment) Regulations 2016) and a series of supplementary rulebooks. The framework is derived primarily from the financial services regulatory regime in the UK, with influences from other jurisdictions such as the US, Hong Kong and Australia, and has also been adjusted to reflect local needs.

When marketing foreign funds in the ADGM it will be necessary to consider the relevant parts of FSMR together with the supplementary rulebook relating to funds (the Funds Rules). Set out below is a brief summary of the key areas of FSMR and the Funds Rules that would apply to the marketing of foreign funds in the ADGM. It should be noted that the applicable rules in onshore UAE (see above) and the Dubai International Financial Centre (DIFC) will also need to be considered in respect of any marketing of foreign funds in those jurisdictions.

FSMR contains a prohibition (the General Prohibition) on conducting certain regulated activities by way of business within the ADGM without being authorised by the Financial Services Regulator of the ADGM (the Regulator) to do so or being an exempt person. The list of regulated activities is similar to that in the DIFC and includes activities such as "Arranging Deals in Investments", "Dealing in Investments as Principal" and "Dealing in Investments as Agent". Units in a fund constitute specified investments for these purposes. As a result, the marketing of foreign funds in the ADGM is likely to fall within one or more of these regulated activities depending on the way in which the marketing exercise is conducted. Indeed, guidance in the Funds Rules specifically states that the General Prohibition prohibits the financial promotion of units in a fund by any person other than an authorised person or an exempt person.

The financial promotions prohibition

FSMR also includes a financial promotions prohibition, which prohibits financial promotions in the ADGM unless they are made or approved by an authorised person or an exempt person. There are some further exemptions to this prohibition, although these are limited in scope and relate to specific circumstances such as unsolicited approaches by potential customers, entities that are mere conduits of promotions and intra-group promotions. The marketing of foreign funds in the ADGM would be likely to constitute a financial promotion and therefore would need to be made or approved by an authorised person or come within one of the various exemptions.

When a foreign fund is being promoted in the ADGM by an authorised person, the Funds Rules contain further requirements in respect of such marketing activities. These include the provision of certain information about the fund to the Regulator within 30 days of commencing marketing activities and, significantly, making a prospectus compliant with the Funds Rules available to investors. There are certain limited exemptions to these requirements which may apply depending on the way in which the marketing exercise is conducted.

To the extent that a person is considering marketing foreign funds in the ADGM, the ADGM financial services regulatory framework will need to be considered. It is likely that any such marketing will need to be carried out by an authorised or exempt person. This will trigger certain licensing and other requirements under FSMR and the Funds Rules. The financial services regulatory framework in the ADGM has, however, only recently been introduced and as yet there is very little in the way of guidance or precedent in respect of the interpretation and application of the new rules and regulations. Therefore, we would recommend that specific advice is taken prior to the carrying out of any marketing of foreign funds in the ADGM.