ETFs And Retail Products In The GCC

Thank you to Deborah Fuhr for the opportunity to discuss a few hot topics on ETFs and more generally retail investment products available in the Middle East, alongside such distinguished individuals during the recent ETFGI Global ETFs Insights Summit.

Some recent trends I have noticed include:

• The current markets for ETFs in the GCC, with a focus on the UAE, Saudi Arabia and Qatar: There is a distinction between ETFs having exposure to the GCC markets, ETFs being distributed in the GCC, and homegrown locally established ETFs that have exposure to a variety of different geographies - different regulations will apply depending on the type of ETF. Also noteworthy is the absence in the GCC of a passporting regime allowing you to offer financial products in all GCC countries when registered in one, unlike there are in other regions such as in the EU.
• The distribution of ETFs in the local markets to retail investors: There are a growing number of platforms offering these products online and which are easily accessible. Though there are a few major hurdles, such as the strict regulatory environment in the region, requiring a locally licensed agent to be appointed to distributed retail products. In the UAE it can be even more difficult where the SCA has introduced new regulations prohibiting the promotion of foreign retail funds (including ETFs) as of March 2024.
• The status around robo-advisory services and platforms offering ETFs and other retail products online: There are a few locally grown initiatives, but also a lot of competition from international players. International players are coping with the strict accessibility regulations in respect of retail investors as mentioned above, but are online platforms actually "promoting" foreign funds, falling within the remit of the legislation, or are they only listing products more generally without any promotion? This is a major question and the answer to which can prove to be a game-changer...
• Bitcoin and crypto: A few jurisdictions are still lacking any sort of legal regime around these in the GCC, but paradoxically given crypto has achieved a very strong market penetration. Dubai with the VARA and Abu Dhabi with the ADGM stand out as the key jurisdictions for any crypto business - be it at different levels. As there is no specific legal or regulatory regime, there remains questions and uncertainty. Professionals must be mindful of this when offering these products in the region.

In general, we are seeing a strong uptake in retail financial products, despite the difficult regulatory environment. Things are however evolving and certain jurisdictions are more active than others to attract these businesses, with a healthy competition taking place. The absence of a passporting regime in the GCC is still a challenge, but at the same time increases such competition between jurisdictions.

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