Global asset management quarterly - The Middle East

SCA Board of Directors Decision No. 3 RM of 2017 on the Regulation of Promotions and Introductions

Authors: Ola Al-Kadi

The UAE SEC has issued a new decision on the regulation of promotions and introductions

In January 2017, the UAE Securities and Commodities Authority (SCA) issued SCA Board of Directors Decision No. 3 RM of 2017 on the Regulation of Promotions and Introductions (the Regulations), which came into force in February 2017.

While some of the provisions of the Regulations require further clarification from the SCA, the issue of the Regulations is a significant step in the development of the UAE onshore regulatory regime, as it fills a legislative gap, and provides greater certainty for the UAE financial services industry and foreign stakeholders.

The Regulations principally cover

• The promotion of financial products onshore in the UAE (this covers the marketing, distribution, advertising, publishing or providing any information/marketing material in relation to “financial products”. This term includes shares, bonds sukuks, investment fund units, commodity contracts, derivatives and any other securities or financial instruments issued by a foreign issuer).
• The introduction of a person who wishes to receive a “financial service” (including trading services) to either an SCA-licensed entity or any other entity which is regulated by a foreign regulator similar to the SCA.

The Regulations prohibit

• The promotion of financial products unless the promoter is licensed by the SCA or one of eight specific exemptions available under the Regulations applies.
• Any person from introducing a person located onshore in the UAE to either an SCA-licensed entity or an entity licensed by a foreign regulator similar to the SCA, unless the introduction is approved by the SCA or one of the exemptions under the Regulations applies.

Where no exemption applies, an SCA-licensed promoter marketing a financial product will either need to give notice to the SCA or make an application to the SCA for approval, depending on the type of financial product being promoted.

In addition, the Regulations contain further specific provisions on the marketing of foreign funds onshore in the UAE, which aim to fill the legislative vacuum following the issue of SCA Board of Directors Decision No. 9 of 2016 on the Regulation of Investment Funds (Funds Regulations). The Regulations should therefore be read in conjunction with the Funds Regulations when considering the promotion of foreign funds onshore in the UAE. The Regulations impose additional requirements on a SCA-licensed promoter in respect of the marketing of foreign funds onshore in the UAE, which relate to both public offers and private placements of foreign funds.

The Regulations also confer on SCA broad sanctions/powers. These include warnings, fines, suspension and cancellation of a promoter’s licence or an introducer’s approval.  The SCA also has the right under the Regulations to publish the names of persons that have breached any of the provisions of the Regulations.

Although these much-awaited Regulations provide greater certainty for the UAE financial services and foreign stakeholders, they do create some challenges for those interested in carrying out promotional activities onshore in the UAE.