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Background and Introduction
When the Securities and Commodities Authority (“SCA”) introduced Decision No. 1 of 2014 concerning Investment Management (the “Investment Management Regulations”), asset managers in the UAE that were historically licensed by the Central Bank were encouraged to obtain a new investment management licence from the SCA under the Investment Management Regulations (the “Investment Management Licence”). This new licence was meant to be the successor to the financial investment license previously granted by the Central Bank to conduct asset management services.
The term ‘Investment Management’ is defined in the Investment Management Regulations as the “management of Securities Portfolios for the account of third parties or the management of Mutual Funds in accordance with investment objectives and policy defined in the investment management agreement signed between the Investment Manager and its clients including individuals, establishments or Mutual Funds.”
In 2016, the SCA issued new fund regulations pursuant to Decision No. 9 RM of 2016 (the “Fund Regulations”). The Fund Regulations created a new licence category known as the “Management Company” licence (the “Management Company Licence”). The Management Company Licence permits the licensed entity to establish and manage mutual funds.
An initial impression of these two seemingly similar licences may illicit confusion as to why there is a need for both. However, the Fund Regulations have clarified the differences between the two licences and the following is a summary of the scope of each licence:
Establishment of funds: The Management Company License allows for the Management Company to establish funds, provide administrative services, and promote and supervise such funds. In contrast, the Investment Management Company License does not permit the establishment of funds.
Management of funds: The Management Company Licence also permits the Management Company to manage funds it has established, but does not permit the management of funds that it has not established. The Investment Management Company Licence permits the licensee to manage funds that are established by others, without permitting the establishment of funds.
Security Portfolios: The Investment Management License allows for the management of securities portfolios, but the Management Company License does not.
The following are the conditions to obtain a Management Company Licence under the Fund Regulations:
Generally, most of the requirements to set up a Management Company are similar to those required to set up an Investment Management Company. Therefore, a licensed Investment Management Company may also apply for the Management Company Licence as it will already have met many of the Management Company License’s requirements. This makes the Management Company License application much easier and faster for entities already holding an Investment Management Licence.
Obligations of the Management Company
The Management Company has a number of obligations and restrictions prescribed by the Fund Regulations. The Management Company must:
The introduction of the Management Company License will have several vital implications on the funds market in the UAE. This will especially affect existing Investment Management companies, as they will now have to apply for an additional license to be able to set up new funds, which will involve additional cost and time. As far as we are aware, no Management Company License’s have yet been issued by the SCA, despite the Fund Regulations having been in place for several months. As the Fund Regulations will likely affect the way in which existing Investment Management companies operate and how new entrants will asses market conditions, it is important for such entities to carefully consider the implications of the Fund Regulations.