United Arab Emirates: The Introduction Of A New Licence By The SCA

Last Updated: 16 January 2018
Article by Ali Awad

Background and Introduction

When the Securities and Commodities Authority ("SCA") introduced Decision No. 1 of 2014 concerning Investment Management (the "Investment Management Regulations"), asset managers in the UAE that were historically licensed by the Central Bank were encouraged to obtain a new investment management licence from the SCA under the Investment Management Regulations (the "Investment Management Licence"). This new licence was meant to be the successor to the financial investment license previously granted by the Central Bank to conduct asset management services.

The term 'Investment Management' is defined in the Investment Management Regulations as the "management of Securities Portfolios for the account of third parties or the management of Mutual Funds in accordance with investment objectives and policy defined in the investment management agreement signed between the Investment Manager and its clients including individuals, establishments or Mutual Funds."

In 2016, the SCA issued new fund regulations pursuant to Decision No. 9 RM of 2016 (the "Fund Regulations"). The Fund Regulations created a new licence category known as the "Management Company" licence (the "Management Company Licence"). The Management Company Licence permits the licensed entity to establish and manage mutual funds.

Comparison

An initial impression of these two seemingly similar licences may illicit confusion as to why there is a need for both. However, the Fund Regulations have clarified the differences between the two licences and the following is a summary of the scope of each licence:

Establishment of funds: The Management Company License allows for the Management Company to establish funds, provide administrative services, and promote and supervise such funds. In contrast, the Investment Management Company License does not permit the establishment of funds.

Management of funds: The Management Company Licence also permits the Management Company to manage funds it has established, but does not permit the management of funds that it has not established. The Investment Management Company Licence permits the licensee to manage funds that are established by others, without permitting the establishment of funds.

Security Portfolios: The Investment Management License allows for the management of securities portfolios, but the Management Company License does not.

 

Licensing Conditions

The following are the conditions to obtain a Management Company Licence under the Fund Regulations:

  1. The applicant must be:
  • a company operating in the area of securities and licensed by the SCA;
  • a company incorporated to undertake the establishment and management of Mutual Funds;
  • a local bank or a branch of foreign bank licensed by the Central Bank; or
  • a branch of a foreign company licensed in the jurisdiction of its head office to establish and manage mutual funds and subject to a regulator similar to the SCA.
  1. The share capital must not be less than AED 5 million.
  2. The memorandum of association of the company must be authenticated before the official authorities and must be in Arabic or translated into Arabic.
  3. The licensing fee must be paid.
  4. Technical and administrative staff required to practice the business as per the rules issued by the SCA must be appointed.
  5. Appropriate office, software and technical systems required to practice the business in accordance with the requirements of SCA must be procured.
  6. The establishment of an internal control system that ensures the integrity of applying the law, regulations, decisions and circulars issued, as well as the bylaws applicable in the markets.
  7. The creation of an operational manual for risk management that identifies and defines the potential risks, including the regulatory risks, which may face the company, how to handle them if they occur, and the monitoring and reporting of such risks in a manner that enables the company to continue in business and comply with the Fund Regulations.

Generally, most of the requirements to set up a Management Company are similar to those required to set up an Investment Management Company. Therefore, a licensed Investment Management Company may also apply for the Management Company Licence as it will already have met many of the Management Company License's requirements. This makes the Management Company License application much easier and faster for entities already holding an Investment Management Licence.

 

Obligations of the Management Company

The Management Company has a number of obligations and restrictions prescribed by the Fund Regulations. The Management Company must:

  1. Assume the tasks of the management of the investment of the fund it establishes, including the administration, promotion and supervision of the fund. The unit holders may not interfere in the management of the fund in any way, except in the matters set forth in the prospectus or the matters which the Management Company decides must be submitted to the unit holders for voting.
  2. Act as the legal representative for any mutual fund in dealings with third parties.
  3. Refrain from the management of security portfolios or mutual funds established by third parties without obtaining a Investment Management Licence.
  4. In the case of the company also being licensed as an investment manager, refrain from investing the money of security portfolios it manages in any mutual funds it establishes or manages without the prior consent of the unit holders.
  5. Ensure its capital is at least 0.02% of the net value of the assets of the funds established or managed by the company where the value of assets of the Mutual Funds established or managed by the company exceeds one billion Emirati Dirhams, provided that the additional capital does not exceed 40 million Emirati Dirhams.
  6. Manage risks and conflicts of interest with the security portfolios managed by the company with any mutual funds which the company establishes or manages.
  7. Ensure the assets of the fund are maintained separately from the money and assets of the Management Company and from the assets of any other fund established or managed by the Management Company.
  8. Refrain from promoting or providing administrative services to third parties without obtaining the approval or licence to practice that activity from the SCA.
  9. Appoint a custodian for the fund and not change the custodian without the consent of the SCA and refrain from acting as the custodian for the mutual funds established or managed by the Management Company.
  10. Ensure that the Management Company, its parent company, affiliates, related or sister companies do not hold 30% or more of the capital of the entities in which the mutual funds established or managed by the Management Company invest.
  11. Refrain from collecting subscription or redemption fees in cases where the investment is in the units of funds or shares of investment companies established or managed by the Management Company by itself or through associated or related management companies.
  12. Assess the assets, calculate the net asset value of the unit, and distribute or maintain the profits.
  13. Disclose all the information related to the fund and any other disclosures in relation to the fund's activities, reports and prospectus to the unit holders.
  14. Ensure that the management fees conform to the risks and interests of the fund and with the interests of its unit holders. The management fees shall be defined and reviewed as per the applicable procedures in the Management Company. The fees shall be defined and be at a fixed rate, and additional incentive fees shall be disclosed in the prospectus.
  15. Ensure that employee salaries are not associated with the performance of the fund.
  16. Ensure that the fund units shall be sold and redeemed at the announced price of the units' net asset value and as per the mechanism set forth in the prospectus, provided that announcement is made at least twice a month.
  17. Inform the unit holders of the dividends and the cases of suspending the redemption operations using the notification method set forth in the prospectus. All the procedures shall be documented and they shall be handled fairly.
  18. Set an effective investment policy to manage the liquidity and suspension of the redemption operations that ensure an amount of liquidity that conforms to the nature of the fund to face the risks related to the fund's investments. Such liquidity may be represented in investment instruments with low risks and can be transferred into cash upon request.
  19. Perform the sale and purchase operations in the markets while achieving "best execution" and not be biased so as to achieve special gains or compromise the rights of unit holders. The Management Company may not fabricate transactions to increase the commissions, fees or expenses of other entities.
  20. Not allow the Management Company or any of its employees to obtain special gains or privileges from the fund except the agreed management fees.
  21. Study the financial position of the companies and the assets in which the assets of the fund established or managed by the company are invested.
  22. Constantly maintain the solvency required to practice the business to ensure its ability to meet its obligations as per the relevant criteria issued by SCA.
  23. Set a written bylaw within a month from the date of receiving the license and provide the SCA with a copy of such bylaws while considering amending the provisions of such bylaws in conformity with the amendments made to the law, regulations, decisions or circulars issued under such law and inform the SCA of the same.
  24. Conduct regular reviews of the internal control system and the operational manual of risk management and update them continuously in line with the nature of the company's business and as applicable in this field.
  25. Set the professional ethical rules for its employees, supervise its employees, and regulate and control their personal transactions in securities to ensure they strictly abide by the provisions of the law and the regulations, decisions and circulars issued by SCA, especially those related to honesty, integrity and conflict of interests.
  26. Cooperate and coordinate with the internal auditor and enable it to practice its tasks. Inform the SCA of any violation of the law or the regulations, decisions, circulars, or rules issued under such law or the bylaws applicable in the markets.
  27. Exercise due care in the performance of its tasks.

The introduction of the Management Company License will have several vital implications on the funds market in the UAE. This will especially affect existing Investment Management companies, as they will now have to apply for an additional license to be able to set up new funds, which will involve additional cost and time. As far as we are aware, no Management Company License's have yet been issued by the SCA, despite the Fund Regulations having been in place for several months. As the Fund Regulations will likely affect the way in which existing Investment Management companies operate and how new entrants will asses market conditions, it is important for such entities to carefully consider the implications of the Fund Regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions