Introduction of the UAE fund passporting arrangement

New legislation and rules

The Emirates Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) of the Dubai International Financial Centre and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market announced on March 11, 2019 that they have introduced rules, based on a common regulatory framework, to facilitate the marketing and sale (promotion) of units in domestic UAE funds across the United Arab Emirates.

Who will this be of interest to

The new rules are likely to be of interest to fund managers regulated by SCA, the DFSA or FSRA and other authorised firms regulated by any of these regulators to promote units in domestic UAE funds (these are funds which have been established or are domiciled in the UAE) in the UAE (in each case a UAE Licensed Firm). The passporting arrangement does not apply to the promotion of units of foreign funds in the UAE.

Why is the passporting arrangement of interest

The successful passporting of a UAE fund, will allow the UAE Licensed Firm to promote units in the relevant UAE fund to “Qualified Investors” (please see below for more detail on this point) in one or both of the other jurisdictions in the UAE. For example, a UAE Licensed Firm which is regulated by the DFSA would be able to promote the units in a DIFC domiciled fund to “Qualified Investors” in the Abu Dhabi Global Market (ADGM) and/or onshore in the UAE, depending on the jurisdictions it requested in its notification to the DFSA. This will save the UAE Licensed Firm significant time and costs because it will not have to seek additional licences or appoint agents in the other jurisdictions, as was previously the case. By introducing this passporting arrangement, the competent authorities in the UAE are seeking to stimulate the development of the domestic UAE funds market.

How does the passporting arrangement work

The arrangement works by a UAE Licensed Firm making a straightforward notification process to its regulator. The notification will specify which other jurisdiction(s) the Firm wishes to promote the UAE fund. Such notification should, save in limited circumstances, lead to the publication of details of the passported UAE fund on both the home regulator’s Register of Passported Funds and on the other regulator or regulators Register(s) of Passported Funds. The relevant UAE fund will then be a passported fund.

The arrangements distinguish between the promotion of private UAE funds and public UAE funds. For example, the notification requirements differ for each type of Fund. Also, a UAE Licensed Firm will only be able to promote units in a private UAE fund, in the other jurisdiction(s), to prospective investors who/which meet the definition of a “Qualified Investor.” This definition tracks the definition of “Professional Client” in the DFSA’s Rules.