On 20 February 2019, the Board of the Dubai Financial Services Authority (the DFSA) issued the new Fund Protocol Rules (the FPR) Module to the DFSA Rulebook. The FPR Module, along with associated amendments across other modules to the DFSA Rulebook, came into force on 25 February 2019, enabling the passporting of domestic funds across the various financial services jurisdictions within the UAE. This articles highlights some key considerations.
On 27 November 2018, the federal capital markets sector regulator in the United Arab Emirate (the UAE), the Securities and Commodities Authority (the SCA), along with the financial services regulators in the UAE’s two financial free zones - the DFSA of the Dubai International Financial Centre (the DIFC), and the Financial Services Regulatory Authority (the FSRA) of the Abu Dhabi Global Market (the ADGM) - announced that they had reached an agreement to facilitate the licensing of funds domiciled in each other’s respective jurisdictions.
The new FPR Module-related changes to the DFSA’s regulatory framework come as a direct result of DFSA Consultation Paper No. 123 on “Fund Protocol Rules”, issued on 27 November 2018. We have reviewed the relevant proposed amendments to the DFSA’s rules in a previous elexica note (UAE Financial Regulators agree on passporting regime for domestic funds) accessible here.
The new FPRs Module can be found here. Whilst the associated updates to the Fees Module (FER) of the DFSA Rulebook confirm the position in the draft rules, that the initial notification fee (to be paid by an applicant) for a domestic fund to be added to the “Register of Passported Funds” is $9500, there is also an initial and subsequent annual fee of $4000 (under the draft rules this was $2000). If the applicant is a “Fund Manager” who is also managing the DIFC-domiciled domestic fund that is seeking to be passported under the new regime, the Fund Manager must pay an additional annual fee of $2000 per passported fund.
For the avoidance of doubt, if a domestic fund (domiciled in the DIFC, ADGM or Onshore UAE) is registered for passporting in accordance with the new FPR Module, it may be “Promoted in the DIFC” (whether on a private basis to “Qualified Investors” - ie “Professional Clients” as defined in the Conduct of Business Rules Module (COB) of the DFSA Rulebook - or on a public basis, depending on whether the fund is a “Private Fund” or a “Public Fund”). The FPR Module defines “Promotion”, “Promoted” and “Promote” as follows:
“The marketing and sale of units of a Passported Fund [which] … includes any arranging, dealing and advising activities in relation to the units.” (FPR Module, Rule 1.3.1)
The associated changes to the General Module (GEN) of the DFSA Rulebook make it clear that a “Fund Manager” of a passported fund does not carry out regulated activities “by way of business” in or from the DIFC (otherwise requiring an appropriate DFSA licence), to the extent that it promotes units of the passported fund in the DIFC.
Our previous article noted that the ADGM’s FSRA had also issued a consultation paper corresponding to the same fund passporting issue - Consultation Paper No. 7 of 2018 on Proposed Fund Passporting Rules, on 29 November 2019. However, the FSRA has yet to issue its final rules, which we anticipate to be in-line with the DFSA’s position and in any case, imminent.
It also still remains to be seen whether the SCA will issue a separate decision to implement the agreement between the regulators, or whether it will amend its existing regulations in relation to funds, such as the SCA Board of Directors’ Chairman Decision No. (9/R.M) of 2016 Concerning the Regulations as to Mutual Funds, and/or the SCA Board of Directors’ Chairman Decision No. (3/R.M) of 2017 Concerning the Organisation of Promotion and Introduction.
Other Miscellaneous Changes
As highlighted in the DFSA Consultation Paper No. 122 on “Miscellaneous Changes”, issued on 13 December 2018, following the DFSA having received and granted a number of requests to recognise certain European Union (EU)-domiciled Alternative Investment Funds (AIFs), an AIF “…managed by an Alternative Investment Fund Manager (AIFM) that is authorised by a Competent Authority in a Member State in accordance with the requirements of the AIFMD”, has been added to the DFSA’s Recognised Jurisdictions and Designated Funds list (through Recognised Jurisdiction Notice No. 5). Therefore, such AIFs are now added to the DFSA’s fund eligibility criteria when considering EU-domiciled funds (other than UCITS).
Following the DFSA Consultation Paper No. 122, the draft proposed regulations to introduce a minimum annual requirement of 15-hours of continued professional development (CPD) for:
- Senior Executive Officers (SEOs)
- Compliance Officers
- Money Laundering Reporting Officers (MLROs), and
- employees delivering Financial Services to customers.
of the DFSA Authorised Firm, has not made it to the revised updated GEN Module. The DFSA considered the United Kingdom’s Financial Conduct Authority (FCA) requirement for retail investment advisers to carry out at least 35 hours of CPD. Nonetheless, it is clear that the DFSA has been considering introducing the concept of “structured activities” (ie courses, seminars, lectures, conferences, workshops, web-based seminars or e-learning which require a commitment of thirty minutes or more) into its “fit and proper” and related-training considerations for various regulated and employee functions.
For further specific guidance on the impact of the FPR Module to the DFSA Rulebook, or any of the other issues raised in this article, please contact Muneer Khan and Samir Safar-Aly.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.