The Securities and Commodity Authority of the United Arab Emirates (“SCA”) issued new regulations regarding the promotion of foreign funds in the UAE¹ and the establishment of UAE-domiciled funds². In particular, a public offering of foreign funds in the UAE is no longer permitted and foreign funds (including UCITS) can no longer be registered with SCA for a public offering. Foreign funds may only be marketed in the UAE on a private placement basis to Professional Investors and must be registered with SCA for a private offering.

SCA also amended the SCA Rulebook³ to clarify that the “Professional Investor” exemption does not apply to the private offering of foreign funds in the UAE. In our view, foreign funds were always required to register with SCA for a private offering under the SCA Board of Directors’ Chairman Decision No. (9/R.M) of 2016 Concerning the Regulations as to Investment Funds (the “2016 Fund Regulations”) and the Professional Investor exemption under the SCA Rulebook did not avoid such SCA registration. We note that there was a common misconception in the market in this respect. The SCA Rulebook, that introduced the professional investor exemption, only partly repealed the 2016 Funds Regulations. The section of the 2016 Funds Regulations requiring all foreign funds to be registered with SCA was not repealed.

Foreign managers may establish local public feeder funds whose purpose is to invest in foreign public funds and offer such funds to retail investors in the UAE. Therefore, one solution is for foreign fund managers to obtain a fund management license from SCA in order to establish one or more public feeder funds in the UAE pursuant to the 2023 Funds Regulations.

We note that the UAE passporting regime that was entered into by SCA, the Dubai Financial Services Authority of the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority of the Abu Dhabi Global Market (ADGM) has not been amended. Therefore, fund managers licensed in the DIFC or the ADGM may continue to market funds domiciled in the DIFC or the ADGM on a private placement basis to qualified investors in the UAE or pursuant to a public offering to retail investors in the UAE. In our view, this may present an alternative solution for foreign fund managers who are no longer able to publicly offer foreign funds (such as UCITS) to retail investors in the UAE. Foreign fund managers may obtain a fund management license in the DIFC or the ADGM to establish one or more public feeder funds in the DIFC or the ADGM whose purpose is to invest in foreign funds that they manage.

A summary of certain other key changes include:

• The registration fee for promoting units of foreign private funds to professional investors has been reduced from Thirty Five Thousand Dirhams (AED 35,000) to Ten Thousand Dirhams only (AED 10,000).
• Renewal fee for registration of Foreign Funds has been reduced from Seven Thousand Five Hundred Dirhams (AED 7,500) to Five Thousand Dirhams only (AED 5,000).
• Entities registered with the SCA to promote foreign investment funds to retail investors (e.g. a public offering) can transfer their registration to promote foreign investment funds to professional investors (e.g. private offering) by submitting an application to SCA.
• The introduction of protected cell funds in the UAE.

Footnotes

1) Resolution No. (04/RM) of 2023 A.D Regulating Status Adjustment Mechanisms for Promotion of Foreign Fund Units within the State.

2) Resolution No. (01/Chairman) of 2023 Regulating Investment Funds (the “2023 Funds Regulations”)

3) Resolution No. (02/RM) of 2023 A.D. Amending the Rulebook of Financial Activities as approved by SCA Board Resolution No. (13) of 2021 (the “SCA Rulebook”).