UAE Securities regulatory regime for promoting and introducing foreign securities comes into force

The Securities & Commodities Authority (SCA), the financial services regulator in onshore UAE (which does not include the Dubai International Financial Centre or the Abu Dhabi Global Market) previously issued the Chairman Decision No. 3/R.M of 2017 concerning Promoting and Introducing Regulations (PIRs). The PIRs were published in the UAE Official Gazette on 31 January 2017 thereby coming into effect on 01 February 2017 (see our previous elexica article on the PIRs).

In summary, the PIRs relate to the promotion of and introductions relating to “Foreign Securities”, which are defined as “shares, stocks, bonds, sukuk, units of investment funds, commodities contracts, derivatives and any other securities or financial instruments issued by a "Foreign Issuer"”. The PIRs are the latest regulations released by the SCA that relate to the promotion of foreign securities in the UAE and follow on from Mutual Funds Regulations and the Mutual Funds Fees Regulation (MFRs), which were implemented in August 2016, and relate specifically to mutual funds.

The MFRs and PIRs (together the “Regulations”), when read together, provide that, unless promoting to a non-natural Qualified Investor, as defined in the Regulations, or in response to a valid documented reverse enquiry, Foreign Securities may not be promoted in onshore UAE unless they are registered with the SCA and an agreement with a locally licensed promoter is concluded. It will be the marketing entity’s responsibility to ensure the exempt status of the potential investors if they intend to promote foreign securities to a non-natural Qualified Investor. We can advise on the appropriate due diligence to be undertaken and representations that should be obtained in order to be able to utilise the Qualified Investor exemption.

Under the PIRs, a form of reverse enquiry exemption has been codified. Consequently, a firm may market specific foreign securities following an unsolicited reverse enquiry without breaching the marketing restrictions. However, care needs to be taken when relying on the reverse enquiry exemption and we can provide specific guidance on how to apply it.

Following the introduction of the MFRs, it is now possible for the first time for asset managers not based in the UAE to register their non-UAE domiciled funds for promotion in onshore UAE by a locally approved distributor. This regulatory change is particularly relevant for EU UCITS, as these types of funds are generally recognised by the SCA as eligible for public promotion in onshore UAE.

Simmons & Simmons can provide full assistance with applications to the SCA in order to register non-UAE funds for local promotion in onshore UAE and renewals of such registrations. For more information, please contact either Muneer Khan or Samir Safar-Aly.