United Arab Emirates: DIFC Funds – The Way Forward

Last Updated: 27 March 2010
Article by Lynette Brown and Javid Rafiq

In June 2009, the Dubai Financial Services Authority ('DFSA') established a Market Practitioners Panel ('Panel') to review the Dubai International Financial Centre's ('DIFC') collective investment funds regime principally embodied in the DIFC

Collective Investment Law of 2006 and the DFSA's Collective Investment Rules.The Panel comprised 10 industry experts (of which Lynette Brown of Al Tamimi & Company was deputy chairperson) and was tasked to review the funds regime to identify what, if any, changes were needed to make the regime more attractive to the funds industry and potential investors.

The establishment of the Panel provided an ideal opportunity to shape the funds regime in a way that would best serve the need of the funds industry and investors, as well as continuing to promote the DIFC as a centre of excellence in funds management.

A key assumption providing the impetus for the recommendations made by the Panel was that the DFSA identified the need to attract the establishment of funds in the DIFC, to encourage fund managers to domicile their funds in the DIFC, and to provide a regulated funds regime which investors and the funds industry find acceptable.Panel RecommendationsThe Panel reported its recommendations to the DFSA in September 2009. The recommendations were made as to how the DFSA may support the growth of the funds industry in the DIFC by: (a) encouraging the establishment of DIFC funds; and (b) promoting the management of funds (both domestic and foreign) from the DIFC, in a manner that is consistent with international best practice principles relating to regulation of collective investment funds.

The Panel report contained recommendations relating to 10 key issues. The Panel expressed the view that these issues needed to be addressed in order to support the growth of the funds industry in the DIFC.

The key recommendations of the Panel to the DFSA included the following:

  • Allowing DIFC-based fund managers to establish funds in other reputable jurisdictions, and also allowing fund managers established in reputable jurisdictions to establish funds in the DIFC;
  • Expanding the grounds on which authorised firms in the DIFC can distribute units of foreign funds;
  • Reducing licensing and other associated costs of fund managers;
  • Allowing the protected cell company structure to be used for umbrella funds;
  • Creating an exempt funds regime, in addition to the current public and private funds, which is tailored to provide the right level investor protection to a high-net worth professional investor;
  • Reducing aspects of the current independent oversight;
  • Tailoring Shariah compliance requirements to suit the nature of the Islamic finance activities of the fund manager and the nature of the fund; and
  • Making the DIFC Funds regime more visible to the international fund community.

Among other suggestions, the Panel was of the view that it would be advantageous to authorised firms in the DIFC if they could get easier access to local assets in Dubai and the rest of the UAE, for investment by a DIFC fund. The Panel also noted that one of the key perceived advantages of fund managers setting up a fund in the DIFC may be to access investments in the UAE and GCC. However, such access is not in fact readily available to DIFC funds due to foreign ownership restrictions relating to both real estate and certain securities in the UAE where the DIFC fund may be treated as a 'foreign entity'. Hence, the Panel recommended that the DIFC seek approval for DIFC funds to be treated as a UAE company (providing the fund meets the 51% UAE shareholder threshold) in Dubai , UAE and GCC.

The Panel concluded by discussing strategy for positioning of the DFSA and DIFC in relation to the establishment of the funds industry in the DIFC. While the Panel acknowledged the DIFC to be well placed geographically in the GCC and to be endowed with a favourable tax regime, they recommended that:

  • An appropriate regulatory regime would be one that applied the right level of regulatory protection to investors without restricting the funds industry with undue regulatory requirements that increased compliance costs which would have little or no benefit to investors or industry participants;
  • Costs of establishment and domicile in the DIFC be reviewed; and
  • The DFSA hold ongoing workshops to promote their funds regime in other jurisdictions to allow for greater visibility to the international fund community.

The Response from the DFSA and the DIFC


It has been widely reported in the local media recently that the DFSA are currently drafting new proposals following the publication of the Panel report.

The proposals are reported to include:

  • A reduction in licensing fees for fund managers; and
  • Introduction of an exempt funds regime which will be made subject to lighter regulatory oversight consistent with similar exempt fund regimes found in other overseas jurisdictions.

The DFSA are reported to have stated that the new proposals should make DIFC more attractive than other comparable jurisdictions for both investors and industry participants.

The DFSA have indicated that the proposals are to be put out in a public consultation paper in March 2010, with the final version expected sometime around the middle of 2010.


It has been widely reported in the local media that the DIFC Authority are considering a substantial reduction in fees before the middle of 2010 to attract more funds into the DIFC.

It is anticipated that the some of the more pressing concerns raised by the Panel report to streamline and reduce the cost in setting up funds in the DIFC have been met head on and will likely come to fruition.

Indeed, in January of this year the DIFC Registrar of Companies confirmed, inter alia, that funds incorporated as investment companies would benefit from a significant reduction in the incorporation fee from US$ 8,000 to US$ 1,000. In addition, the commercial licence fee (both first time issue and renewal fee) has been reduced from US$ 12,000 to zero. ConclusionIt is to be welcomed that positive steps have been taken by both the DFSA and DIFC Authority in attempting to promote the funds industry in the DIFC.

If the DFSA proposals resulting from the Panel's report are implemented the new funds regime could lead to a significant inflow of fund activity to the DIFC. At present compared to overseas markets, the DIFC has a very low level of activity in the fund universe with nine fund operators and even fewer DIFC funds. It is abundantly clear that changes are needed to boost the funds industry in the DIFC so as to enable it to thrive.

The authors will revisit this subject to provide a comprehensive update as soon as the DFSA publishes its public consultation paper in March 2010.

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.

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