Foreign funds can no longer be promoted to onshore UAE retail investors, from 1 April 2024, with those funds already registered with the regulator Securities & Commodities Authority to be converted from public promotion to private placement.
Last year, the SCA issued its Decision No. 4/RM/2023 prohibiting the promotion of foreign funds to retail investors.
The SCA allowed a temporary grace period for foreign funds already registered for public offering. The grace period, initially set to end on 30 June 2023, was extended until 31 March 2024.
Onshore UAE refers to the United Arab Emirates, excluding the ADGM (Abu Dhabi Global Market) and DIFC (Dubai International Financial Centre) financial free zones, each having their separate financial services related laws, regulations and regulators.
The promotion of foreign funds to certain defined "Professional Investors" remains unaffected.
The SCA's decision was aimed at boosting the onshore UAE local funds market.
In a briefing note by Simmons & Simmons on 1 April, partner Muneer Khan and managing associate Sami Ben Dechiche set out two options open to foreign asset managers to continue their fundraising from onshore UAE retail investors:
Option 1 - Establishment of an onshore UAE Public Fund
A public fund under the supervision of the SCA may be established, whether with its own specific investment strategy, or as a feeder fund into a foreign master fund (e.g. a UCITS fund). The public fund may be distributed to UAE retail investors.
The public fund will require an SCA-licensed management company. Foreign asset managers may either establish a presence in onshore UAE and seek a management company license from the SCA or, for example as a first step, appoint a third party SCA-licensed management company.
In order to facilitate establishment in onshore UAE, the SCA has notably reduced the capital requirements for management companies, eased individual accreditation requirements, allowed the outsourcing of accredited positions, and reduced approval times both for management companies and funds.
The SCA has recently indicated the following timeframes, subject to receiving complete applications:
• 2 months for the approval of a management company;
• 10 working days for the approval of a public (retail) fund; and
• 5 working days for the approval of a private (professional) fund.
Option 2 - Establishment of a DIFC/ADGM Public Fund to be Passported
A public fund under the supervision of the DFSA (Dubai Financial Services Authority) or the FSRA (Financial Services Regulatory Authority), the financial services regulators of the DIFC and ADGM respectively, may be established and passported to onshore UAE.
Similarly as for onshore UAE public funds, a DIFC or ADGM public fund may have a direct investment strategy or act as a feeder fund.
A duly DFSA or FSRA licensed fund manager is required for the establishment of the public fund in the DIFC or ADGM respectively. A few third party fund managers in the DIFC and ADGM have established Fund Platforms to facilitate access to the UAE market by foreign asset managers.
These Fund Platforms are similar to umbrella funds in their concept, but provide for greater flexibility and segregation of assets and liabilities.
To read the full briefing note, click here.