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Securities and Commodities Authority (SCA) Regulations

The document discusses new regulations introduced in the UAE to stimulate the funds industry. It outlines various types of funds and fund structures now available. It also discusses initiatives to facilitate cross-border marketing of funds between financial centers in the UAE.

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Zæńäb Můśhţäq
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177 views4 pages

Securities and Commodities Authority (SCA) Regulations

The document discusses new regulations introduced in the UAE to stimulate the funds industry. It outlines various types of funds and fund structures now available. It also discusses initiatives to facilitate cross-border marketing of funds between financial centers in the UAE.

Uploaded by

Zæńäb Můśhţäq
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Securities and Commodities Authority (SCA) Regulations

The UAE has embarked on an ambitious undertaking by introducing new business friendly
mutual funds regulations to stimulate the UAE funds industry and provide the foundation for a
more developed regional funds regime in the Gulf Cooperation Council (GCC).
SCA has recently issued the following new regulations governing the registration, licensing and
promotion of investment funds in the UAE (Funds Regulations):
 Board Decision No. 9 of 2016.
 Board Decision No. 10 of 2016.
 Administrative Decision No. 49 of 2016.
 Administrative Decision No. 52 of 2016.
 Administrative Decision No. 1 of 2017.
 Administrative Decision No. 2 of 2017.
 Administrative Decision No. 3 of 2017.
 Board Decision No. 3 of 2017.
The Funds Regulations constitute the new UAE fund regime regarding onshore local funds and
foreign funds that are marketed in the UAE (outside the two financial free zones). The Funds
Regulations replace SCA Board of Directors Decision No. 37 of 2012 (2012 Regulations).
The Funds Regulations apply to all mutual funds and parties that are related to mutual funds. A
mutual fund is defined as a financial pool engaged in the activity of accumulating investors'
assets for the purpose of investment against the issue of fund units of equal value. SCA interprets
this definition broadly.
A local mutual fund must be established by an eligible sponsor, which include:
 Companies licensed by SCA "in the area of securities" or to manage funds.
 Local or foreign banks licensed by the UAE Central Bank (Central Bank).
 UAE branches of foreign companies licensed by the International Organisation of
Securities Commissions and that have a track record of at least five years.
The sponsor must contribute a minimum share capital of AED5 million and cannot own more
than 30% of the fund's units.
The Funds Regulations provide for (or otherwise contemplate) the following types of funds:
 Public and private funds.
 Master/feeder funds and umbrella/sub-funds.
 Open-ended and close-ended funds.
 Speciality funds, including shari'a-compliant funds, venture capital funds, private equity
funds, exchange traded funds (ETFs), and real estate investment trusts (REITS).

DIFC collective investment funds

The DIFC has made a series of changes to the regulations applicable to collective investment
funds, to encourage the establishment of these funds in the free zone. The DIFC's funds regime is
discussed more fully in Question 6. The Emirate of Abu Dhabi has established the ADGM which
has a funds regime that is very similar to that of the DIFC.

UAE passporting regime for "domestic funds"


In November 2018, SCA, the Dubai Financial Services Authority in the DIFC (DFSA) and the
Financial Services Regulatory (FSRA) of the ADGM announced that they had reached
agreement on facilitating the licensing of domestic funds by each authority for promotion across
the UAE. This means that, in theory, a fund established in the DIFC, the ADGM or onshore in
the UAE can (once the promoters satisfy the requirements of the passporting regime) be
marketed in the other two participating jurisdictions. The DFSA and FSRA have published
amendments to the relevant rules and regulations implementing the passporting regime. The
SCA's regulations have not yet been published.
The Guidance to the DFSA's Fund Protocol Rules (FPR) explains that:
"The three UAE securities regulators: the SCA, the DFSA and the FSRA have agreed a
"Protocol" regarding co-ordinated supervision of the marketing and selling of units of domestic
funds within the UAE (State). The "Protocol" introduces a notification and registration process to
enhance the monitoring and supervision of the financial services associated with the marketing
and sale of units in domestic funds. The Protocol sets out a common regulatory framework which
is to be implemented by each of the regulators. The Protocol is implemented in the DFSA
Rulebook primarily through this module (FPR)."
The passporting regime applies to both private and public domestic funds. It does not apply to
foreign funds promoted in the UAE. Foreign funds and other types of securities promoted in the
UAE remain subject to the applicable rules of the jurisdiction in which they are promoted.
While still in its early stages, this development has the potential to bolster the UAE funds
landscape and make the UAE substantially more attractive for fund managers.

Federal Law No. 2 of 2015 (Companies Law)

In 2015, the Federal National Council adopted the Companies Law, which has made a number of
changes to the existing federal companies law. The Companies Law expressly allows a
shareholder to pledge its shares in a limited liability company to another shareholder or a third
party, and establishes the requirements to effect the pledge. This measure should improve
enforceability of liens and promote lending in the UAE, including in the form of convertible debt
that is common among VC investors.

Insolvency law

The UAE government has recently promulgated Federal Law No. 9 of 2016 on Bankruptcy (New
Bankruptcy Law), which was published in the UAE Gazette on 29 September 2016, giving it an
effective date of 29 December 2016. The New Bankruptcy Law signals a shift from benefiting
creditors in the sense that they could previously force a party into insolvency irrespective of the
sum owed, to providing more options for debtors to regain control over their solvency situation.

Tax regime

With a few exceptions, the UAE is generally a tax-free jurisdiction (see Question 2). However,
from January 2018, the UAE has introduced a value added tax (VAT). Businesses will collect
taxes on behalf of the government and file tax returns accordingly. Although the tax is collected
at each stage of value addition, the primary tax burden falls on the end consumer as suppliers in
intermediate stages can claim a refund.
Various statutory and administrative actions are being taken for the timely and effective
implementation of VAT. Following the establishment of the Federal Tax Authority under
Federal Law No. 13 of 2016, the Tax Procedures Law has been issued (Federal Law No. 7 of
2017). The Tax Procedures Law establishes the framework for federal tax administration in the
UAE. Details will be added by executive regulations to supplement the Tax Procedures Law.

Contributor profiles
Shahram Safai, Partner

Afridi & Angell

T +971 4 330 3900


F +971 4 330 3800
E [email protected]
W www.afridi-angell.com
Professional qualifications. State Bar of California; Law Society of England and Wales;
Association of Professional Engineers of British Columbia
Non-professional qualifications. Association of Professional Engineers of British Columbia
Areas of practice. Corporate; venture capital; real estate; litigation; arbitration.
Languages. English, Farsi
Publications
 Co-author of Commercial Real Estate in the United Arab Emirates: overview, Practical
Law Global Guide, 2019.
 Doing Business in the Middle East: Life After Oil, ACC Docket, June 2016.
 The many demands venture capital firms will make, Gulf News, November 2015.
 Start-ups: It's all about the rights, Start Up (Arabian Business), November 2015.
 Making Monetary Sense: [The How-To] Understand Your VC Term Sheet (co-author),
Entrepreneur Middle East, February 2015.
 IPO You Start-Up, Start Up (Arabian Business), April 2014.

Abdus Samad, Senior Associate

Afridi & Angell

T +971 4 330 3900


F +971 4 330 3800
E [email protected]
W www.afridi-angell.com
Professional qualifications. Punjab Bar Council
Areas of practice. Corporate; mergers and acquisitions; private equity; banking and finance.
Languages. English, Urdu
Publications
 The Mergers & Acquisitions Review (UAE chapter), Law Business Research, 2019.
 UAE Law Considerations on Asset Deals, Legal Era Magazine, August 2019.
Merger Control Reform, The Oath, June 2018.
Evolution of the UAE, Legal Business, May 2017.
END OF DOCUMENT
RESOURCE ID W-012-6417
RESOURCE HISTORY
CHANGES MADE TO THIS RESOURCE
This resource is periodically updated for necessary changes due to legal, market, or practice
developments. Significant developments affecting this resource will be described below.
© 2021 THOMSON REUTERS. ALL RIGHTS RESERVED.
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