In the November 2018 Banking and Finance Update, we provided an overview on the agreement between the Securities and Commodities Authority (“SCA”), the Dubai Financial Services Authority (“DFSA”) and the Financial Services Regulatory Authority (“FSRA”) (each, a “Regulator”) on the implementation of passporting arrangements to enable the promotion of funds established in each of the Dubai International Financial Centre (“DIFC”), Abu Dhabi Global Market (“ADGM”) and the United Arab Emirates (“Onshore UAE”) (together, “Jurisdictions”).
On 11 March 2019, it was announced that following the enactment of the “Fund Passporting Rules” in the ADGM and Onshore UAE, and the “Fund Protocol Rules” in the DIFC (together, “Passporting Rules”), the new passporting facility is now operational. Upon completion of the appropriate notification and registration procedure in its Jurisdiction of establishment or domiciliation (“Home Jurisdiction”), a “collective investment fund” as defined under the laws of the DFSA or the FSRA or an “investment fund” as defined under the legislation of the SCA that is established or domiciled in the UAE (“Domestic Fund”) can be promoted into other Jurisdictions (“Host Jurisdictions”) without the requirement for additional authorisation or the need to appoint a distributor located in the Host Jurisdiction.
We note the following with respect to the Passporting Rules:
1. The Passporting Rules are applicable to Fund Managers, Agents or other Licenced Persons who are: (a) established or domiciled in a Jurisdiction; (b) authorised by the Regulator responsible for regulating the Domestic Fund, or, in relation to a Fund Manager, in the Jurisdiction where the Domestic Fund is established or domiciled (“Home Regulator”); and (c) Promoting a Passported Fund in or from a Jurisdiction.
2. The scope of “Promotion” is wide, capturing the marketing and sale of units of a Passported Fund to investors domiciled in the UAE by means of any form of communication. “Sale” includes any arranging, dealing and advising activities in relation to units. Fund Managers, Agents and other Licenced Persons should therefore ensure that they are appropriately authorised by their Home Regulator to conduct the applicable activity for the Passported Fund in the Home Jurisdiction.
3. Participation in the passporting regime is not mandatory; units of a Domestic Fund may still be sold to investors in a Host Jurisdiction by current means in accordance with the laws of each Host Jurisdiction.
4. In order to take advantage of the new Passporting Rules, for each Domestic Fund, the Fund Manager must comply with a notification process and pay a notification fee to the Home Regulator. An annual fee is payable thereafter. Currently, no additional fees in respect of a Passported Fund will be levied by Host Regulators.
5. Once notified, the Home Regulator and Host Regulator(s) will update their respective Registers of Passported Funds, upon which the Domestic Fund will become a “Passported Fund”.
6. If the Passported Fund is a Private Fund, it may only be Promoted to Qualified Investors in the DIFC and Onshore UAE and to Professional Clients in the ADGM (each as defined in the relevant Passporting Rules), and where it is a Public Fund, to any Persons in the Host Jurisdiction(s).
7. The Fund Manager is required to notify the Home Regulator of material events in accordance with applicable legislation in the Home Jurisdiction, including, without limitation, changes to the Fund Manager, Agents, Licenced Persons or any other any material service providers.
8. Home Regulators have discretion to exercise supervisory and investigatory powers, including de-registration of the Passported Fund.
9. The Passporting Rules complement the current collective investment regimes of the Passported Fund’s Home Jurisdiction, which continue to apply to the Passported Fund. Fund Managers, Agents and other Licenced Persons in performing any activities in connection with the Promotion of a Passported Fund must comply at all times with the legislation applicable to them in the Jurisdiction in which they are domiciled.
The Passporting Rules are a welcome addition to the UAE investment funds regime with the Regulators believing that they will stimulate the development of the domestic funds market by providing investors access to diverse investment opportunities with greater ease and efficiency. In addition, it is expected that the ability to undertake UAE-wide promotion of Passported Funds will increase foreign investment, enhance marketability and ultimately cement the UAE's position as an international financial centre.