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Clifford Chance

Clifford Chance


ESCA Consultation on Investment Funds Regulations – Latest Developments

4 April 2011

Please see the last section of this client briefing regarding clarifications provided by ESCA in a recent meeting with Clifford Chance LLP and certain industry members

In January 2011, the UAE Securities and Commodities Authority ("ESCA") published a Draft Decision on Investment Funds (the "Investment Funds Regulation") for consultation. If and when implemented, the Investment Funds Regulation will transfer regulatory responsibility for the licensing and marketing of investment funds and for a number of related activities from the UAE Central Bank (the "Central Bank") to ESCA. ESCA has confirmed that the UAE is considering implementing a "twin peaks" model of financial services regulation and supervision and the Investment Funds Regulation represents the first move in this direction. Under a twin peaks model, the Central Bank would be responsible for both systemic stability and prudential oversight, while ESCA would be responsible for conduct of business matters (including markets oversight and consumer protection).

Pursuant to the draft Investment Funds Regulation, all funds made available to investors in the UAE (irrespective of minimum investments, the size, number or sophistication of investors, and of whether contact results from reverse solicitation) would need to be approved by ESCA and offered through a locally licensed placement agent.

If implemented, this may cause problems for many firms established in the Dubai International Financial Centre ("DIFC") or elsewhere, who currently engage in a limited amount of cross-border business with non-retail investors in the UAE in a manner that was previously tolerated by the Central Bank. The proposed regime is more stringent than that applied by other regulators in the region (where there is often an informal "tolerated practice" for non-retail business) or in European jurisdictions (where there is generally an explicit exemption for private placements or exempt offers), and would be most comparable to the position in Saudi Arabia.

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