Obtaining a Dubai Financial Services Authority licence

Publication | October 2011

Introduction

The Dubai International Financial Centre (DIFC) is an onshore capital market which opened for business in 2004 and which is designated as a financial free zone (Federal Decree No. 35 of 2004). The DIFC has developed into a leading financial services centre and is home to a number of global and local financial institutions.

Dubai Financial Services Authority (DFSA)

As a first step, applicants should arrange a meeting with the Business Development Department (BDD) of the DIFC to discuss intended activities and to submit a short form business plan. The BDD will review these in consultation with the DFSA and, if appropriate, grant provisional approval to proceed.

Since there are 23 recognised financial services activities, applicants will need to make sure that they are applying for the appropriate category of licence.  

The 23 activities are:

1. Accepting deposits
2. Providing credit
3. Providing money services
4. Dealing in investments as principal
5. Dealing in investments as agent
6. Arranging credit or deals in investments
7. Managing assets
8. Advising on financial products or credit
9. Managing a collective investment fund
10. Providing custody
11. Arranging custody
12. Effecting contracts of insurance
13. Carrying out contracts of insurance
14. Operating an exchange
15. Operating a clearing house
16. Insurance intermediation
17. Insurance management
18. Managing a profit-sharing investment account
19. Operating an alternative trading system
20. Providing Trust services
21. Providing fund administration
22. Acting as the trustee of a fund
23. Operating a representative office.

There are also five different categories of licence. Both the types of activities and category of licence have implications for the initial application process (including the obligation to prepare and agree a business plan with the DFSA in certain circumstances) and for ongoing compliance requirements.

In an effort to improve the efficiency of the application process, the DFSA is giving greater focus to the pre-application phase. It has stressed the importance of engaging with the DFSA at the earliest opportunity after meeting with the BDD and has also clarified the pre-application steps that an applicant should follow (discussed in more detail below).

On a practical note, applicants should always obtain application forms direct from the DFSA as the documents available for download from the website may not always be up to date.

Dubai International Financial Centre

The DFSA may grant a licence to a non-DIFC company (i.e. a branch of a foreign company) if it is established in a “zone 1” jurisdiction (e.g. the UK, US, Australia and Singapore – see the DFSA website for the full list) and regulated by the financial regulator of that jurisdiction. Such a branch could apply for any DFSA licence category and the DFSA would waive the prudential requirements for that foreign company, if it were subject to the financial regulations of the home jurisdiction. However, it would still have the discretion to require the applicant to establish a new legal entity in the DIFC if it considered this necessary.

Any foreign company carrying on business in the DIFC must be registered in the DIFC as a Recognised Company and must comply with certain limited requirements of the DIFC Companies Law.

Representative office

Operating a representative office in the DIFC is the least regulated form of financial activity, but a company undertaking the financial service of “Operating a Representative Office” can only do so if:

  • it is regulated in another jurisdiction
  • its representative office will only be carrying out marketing activities in the DIFC on its behalf, and no other financial service
  • it is willing to accept certain practical limitations on the scope of its operations in the DIFC (e.g. the number of staff it can employ must be in keeping with the nature of those activities a representative office is allowed to conduct).

Application process

The DFSA has recently clarified that each applicant should undertake the following pre-application steps:

  • after meeting the BDD, the applicant should attend a pre-application meeting with the DFSA
  • it can then submit the final draft of its regulatory business plan (RBP) to the DFSA for review and comment
  • the DFSA will meet the applicant to discuss any comments it may have on the RBP
  • once both parties are satisfied with the RPB, a hard copy of the application is submitted (no online applications).

The DFSA should respond within two working days of the submission meeting to confirm whether the application meets the regulatory requirements and is materially complete.

The DIFC and DFSA application forms can be prepared in parallel, but the DIFC application cannot be submitted until the applicant has received an “in principle” approval and draft licence from the DFSA and has signed a lease agreement for office space in the DIFC.

The DFSA aims to provide “in principle” approval within 120 days of submission.

The DIFC application must be submitted through DIFC STAT Online (a portal that allows users to edit, view, validate and submit forms online). The DIFC generates its application forms from the initial information provided by the applicant.

Both the DFSA and DIFC fees depend on the category of licence being applied for (and the corporate vehicle, for DIFC fees).

Ambit of licence

It is unclear how far the DFSA licence extends to those activities carried on with companies and individuals based in the UAE, but outside the DIFC free zone.

The DFSA has the right to grant licences to financial services providers to provide services “in and from the DIFC”. The meaning, effect and extent of “from” are unclear and it is unlikely that the DFSA – or any other DIFC or Dubai organisation – will clarify the position in the near future.

There is a grey area between those activities plainly undertaken “in the DIFC” i.e. physically within the DIFC (such as meetings with DIFC, onshore or overseas clients at which financial services activities are undertaken) which are permissible – and operating an effective business in onshore UAE, which is not.

While there is clearly a point at which a company will be operating outside the scope of its licence, this is often seen as a risk assessment point or management issue. DIFC firms have addressed these risks in a variety of ways, by:

  • ensuring that any marketing activity/documentation is given, or at least confirmed, in writing, and stating or evidencing that the documents are given “from the DIFC”
  • ensuring that no substantive advice is physically given to clients in onshore UAE
  • establishing onshore representative offices
  • the inclusion of wording on websites to the effect that (a) the site does not contain advice, and (b) the content of the site is located in, and provided from, the DIFC.

The UAE Securities and Commodities Authority (SCA) is expected to introduce regulations prohibiting foreign companies from marketing units in investment funds onshore in the UAE (for this purpose a DIFC financial services provider is treated as a foreign company). A foreign company will probably need to obtain SCA approval to market its units in the UAE, but may also have to engage a UAE licensed distributor, or establish a UAE Central Bank/SCA licensed branch to do so.

We recommend that some form of risk investment appraisal is carried out before applying for a financial services licence from the DFSA.


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