Promotion of foreign funds in the UAE
The Securities and Commodities Authority (“SCA”) has issued Chairman Resolution Decision No. (3/R.M) of 2017 Concerning Regulation of Promotion and Introduction (“Promotion Regulations”) providing for the regulation of all promotion and introduction activities associated with local and foreign financial products (within the regulatory purview of SCA). The Promotion Regulations provide a general prohibition on financial products being promoted or introduced within the UAE unless by a licensed promoter and that such financial products are registered or recorded by the SCA.
SCA Administrative Decision No. (58) of 2017 Concerning Compliance Mechanisms for Introduction and Promotion Activities and Fund Administrative Services (“Compliance Regulations”) had granted local promoters with a one year grace period to comply with the Promotion Regulations and obtain a promotion license. The grace period provided to local promoters of foreign mutual funds to comply with Compliance Regulations has expired effective as of Thursday, June 28, 2018.
The SCA, has on 2nd of July issued notifications to local promoters (on their approved list) and to legal representatives of foreign funds. The notifications provide that effective 28 June 2018, only SCA licensed promoters can promote units of foreign funds in the UAE. Additionally, SCA has advised legal representatives of foreign funds to not accept any new subscriptions in currently approved foreign funds, if the local promoter/ distributer is currently unlicensed. Currently only one promoter is licensed by the SCA pursuant to the Promotion Regulations.
Based on discussions with SCA, the rationale behind the two announcements is the expiry of the licensing period granted to obtain the license under the Compliance Regulations. We are given to understand that a decision granting extension on the one year grace period provided under Compliance Regulations is under consideration and this decision could be issued by SCA in the next couple of weeks.
However, it is still permissible to continue accepting monthly contributions under SCA approved systematic investment plans. It is however clear that banks and other distributors that have applied to the SCA for a promotion license would be required to ensure they are now prompt in complying with requirements to obtain the final SCA license.