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UAE has two parallel jurisdictions governing financial services:

•     State of UAE governed by UAE Federal legislation
•     Dubai International Financial Centre (“DIFC”), a free zone governed by its own laws and regulations

DIFC is a self regulated common law jurisdiction with its own system of financial regulation overseen by the Dubai Financial Services Authority (“DFSA”).

In UAE there is no distinction between banking and other financial services in relation to cross-border activities. The financial regulation is based on the criterion of territoriality and it prohibits from carrying any financial activity without being licensed.
A licence is required for activities undertaken directly (through its representatives) or indirectly (through agents)
within the UAE via remote means of communication regardless of the status of the prospective or existing client. Any kind of financial promotion and advertisement in the UAE or into the UAE may be considered as a regulatory
solicitation of business and therefore forbidden without a full licence.

There is no cross border licence in the UAE allowing foreign banks/financial advisors to offer services to UAE residents
without a local presence.

ESTABLISHMENT ONSHORE

The activity of financial consultation and financial analysis is an activity subject to licensing by the Emirates Securities & Commodities Authority (“ESCA”), pursuant to the Federal Law No (4) of 2000 concerning the Securities & Commodities Authority and the amendments thereof.
 
A person may not practise the financial consultancy and financial analysis business without obtaining the required licence for this purpose, according to Decision No (48/R) of 2008 Concerning the Financial Consultation and Financial Analysis.
 
ESCA shall issue its decision to approve or reject the licensing application within 30 days from the date of submitting the application that have satisfied the terms, requirements and technical standards set by markets and approved by ESCA.
 
In order to obtain a licence to practice the activity of financial consultation and financial analysis, the following key conditions must be met:

•       UAE company (one of the forms in Federal Law pertaining
        to Commercial Companies) applying and at least 51% of
        its share capital is held by UAE nationals or GCC nationals
•       the purposes of the company include practising the
        business of financial consultation and analysis
•       the paid up share capital of the company is at least AED
        1.000.000 (approximately USD 272.000)
•       the company has the required qualified technical and
        administrative personnel to practice the business of
        financial consultation and financial analysis
•       the company has an internal control and regular audit
        system
•       provide the required administrative and technical staff to
        practice its business
•       foreign companies licensed by similar regulatory
        authorities in their own countries may practice the
        business of financial consultation and financial analysis,
        provided that such companies have at least 5 years of
        experience and that they satisfy the conditions.
•       UAE company (one of the forms in Federal Law pertaining
        to Commercial Companies) applying and at least 51% of
        its share capital is held by UAE nationals or GCC nationals
•       the purposes of the company include practising the
        business of financial consultation and analysis
•       the paid up share capital of the company is at least AED
        1.000.000 (approximately USD 272.000)
•       the company has the required qualified technical and
        administrative personnel to practice the business of
        financial consultation and financial analysis
•       the company has an internal control and regular audit
        system
•       provide the required administrative and technical staff to
        practice its business
•       foreign companies licensed by similar regulatory
        authorities in their own countries may practice the
        business of financial consultation and financial analysis,
        provided that such companies have at least 5 years of
        experience and that they satisfy the conditions

DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC)


With the recent economic development fuelled to some extent by the significant increase in oil prices, rapid expansion of trade, population growth and the vast infrastructure projects currently underway, there is a growing requirement for a financial
centre to serve the rapidly expanding needs of institutions and
governments in the region.
 
The DIFC is a geographically defined financial free zone which provides a platform for business and financial institutions to reach into and out of the emerging markets of the region. The quality and range of DIFC’s independent regulation, common law framework, supportive infrastructure and its tax friendly regime make it an ideal base to take advantage of the region’s
rapidly growing demand for financial and business services. DIFC fills the time zone gap for a global financial centre between the leading financial centres of London and New York in the west
and Hong Kong and Tokyo in the east.

The DIFC concept has evolved as a means of:
 
•       providing depth to the regional financial markets by
        broadening the range of traditional methods of financing
        currently provided by regional banks
•       attracting liquidity back into investment opportunities
        within the region thereby contributing to its economic
        growth
•       facilitating planned privatizations in the region
        and enabling initial public offerings of privately owned
        companies, thus providing impetus to the programme
        of de-regulation and market liberalization throughout the
        region
•       contributing to the development of regional stock
        markets which, in turn, will contribute towards
        broadening the capital and ownership base of private
        sector companies, and
•       promoting the growth of Islamic finance and the
        development of the region’s reinsurance sector

Nasdaq Dubai (formerly Dubai International Financial Exchange Limited “DIFX”) an international stock exchange located in DIFC, continues to play a major role in the development of regional capital markets by attracting key regional companies to list their shares and other issued securities on the stock exchange. This, in turn, is expected to attract international investors and encourage additional portfolio flows to the region, thereby accelerating the process of the region’s integration with world markets.


Benefits-of-Setting-Up-in-DIFC.png

Dubai Value Proposition
 
Dubai’s many positive attributes, which have contributed to its success as an established international business hub, also serve to make DIFC a renowned international financial centre.
 
A summary of the business registration/licensing steps is provided in the following table:

Benefits-of-Setting-Up-in-DIFC-table.png

Dubai Financial Services Authority (DFSA)


Created under Law No 9 of 2004 and entirely independent of the DIFC Authority and the DIFC Judicial Authority, the DFSA is the integrated regulator responsible for the authorization, licensing and registration of institutions and individuals who wish to conduct financial and professional services in or from DIFC.

The DFSA also supervises regulated participants and monitors their compliance with applicable laws regulations and rules. The DFSA is empowered to make rules and regulations, as well as develop policy on relevant market issues and, in turn, enforce the legislation that it administers.
 
Applicants must provide detailed submission to the DFSA on a wide range of matters. The DFSA rigorously assesses this information to ensure that an applicant is both willing and able to achieve and preserve the high standards applicable in DIFC. The DFSA assesses operating standards relating to competence, financial soundness and integrity. It considers the extent to which a firm, and any of its group entities, may be subject to external regulation, as well as the extent to which those regulators share the DFSA’s high standards of regulation.
 
The application process entails:

•       an applicant’s fitness and suitability to hold a license,
        authorization, or registration
•       the professional, or industry qualifications, competence,
        and experience of an applicant’s employees
•       the robustness of an applicant’s business plan, and its
        ability to effectively manage and control its activities
•       an applicant’s background and regulatory history
•       whether an applicant has sufficient resources,
        including those relating to capital, systems, personnel,
        risk management, and internal controls
•       the suitability of an applicant’s controllers and other
        closely linked entities, and the jurisdictions in which they
        are established, and
•       the applicant’s willingness to deal in an open and co-
        operative manner with the DFSA

The following financial services are permitted by authorized firms
in the DIFC and regulated by the DFSA:

o     Accepting deposits
o     Providing credit
o     Providing money services
o     Dealing in investments as principal
o     Dealing in investments as agent
o     Arranging credit or deals with investments o     Managing assets
o     Advising on financial products or credit

CATEGORY 5 (Islamic Financial Institutions)
 
The activities above fall in different licence categories according
to the base capital requirements:

o     Operating a collective investment fund

Category Licence

Base Capital Requirement

o     Providing custody
o     Arranging custody
o     Effecting contracts of insurance
o     Carrying out contracts of insurance
o     Insurance determination
o     Insurance management
o     Managing a profit sharing investment account
o     Operating an alternative trading system
o     Providing trust services
o     Providing fund administration
o     Acting as trustees of a fund

Categories of Licenses

Authorized Firms can be divided into five categories of license, each with its own rules and capital requirements.
 
CATEGORY 1 (Full license)

Accepting Deposits, Managing a Profit Sharing Investment Account (PSIA)
 
CATEGORY 2 (Principal)

Providing Credit, Dealing in Investments as Principal
 
CATEGORY 3 (Asset Management)

A. Dealing in Investments as Principal (where it does so only as a Matched Principal) or Dealing in Investments as Agent
 
B. Providing Custody (where it does so for a Fund) or Acting as the Trustee of a Fund
 
C. Managing Assets, Managing a Collective Investment Fund, Providing Custody (where it does so other than for a Fund), Managing a restricted PSIA or Providing Trust Services (where it is acting as trustee in respect of at least one express trust)
 
CATEGORY 4 (Advising and Custody)

Arranging Credit or Deals in Investments, Advising on Financial Products or Credit, Arranging Custody, Insurance Intermediation, Insurance Management, Operating an Alternative Trading System, Providing Fund Administration or Providing Trust Services (where it is not acting as trustee in respect of an express trust)

CATEGORY 5 (Islamic Financial Institutions)
 
The activities above fall in different license categories according to the base capital requirements:

Islamic-Financial-Institutions-(1).png


How is Setting Up in the DIFC Different From Onshore

•     In principle, it is not possible for international companies
        to carry out their trading or service activities in the UAE
        without local participation
•     DIFC allows for the establishment of 100% foreign owned
        companies, either as a branch of an already existing foreign
        company or as a 100% incorporated company within the
        DIFC
•     The companies undertaking the financial services will not
        be subject to the laws and regulations of the UAE Central
        Bank and/or SCA, instead will be governed by
        the DFSA laws and regulations
•       The Federal Decree and the General Module (GEN) of the
        DFSA Rulebook and the Conduct of Business Module (COB)
        of the DFSA Rulebook describe prohibited financial activities,
        including:

o     deposit taking from the State’s markets;
o     dealing in UAE Dirhams by banks;
o     insurance business with individuals; and
o     direct insurance of risks located in the UAE
 
An Authorized Firm cannot operate from within the DIFC but have customers outside it and may not engage in any DIFC prohibited financial activities irrespective of where its customers are based.

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