Update - UAE Investment Funds Regulations Issued

Publication | September 2012


In April 2011, we informed you that the UAE Securities and Commodities Authority (SCA) had published draft investment fund regulations for consultation with interested parties. SCA has recently issued the UAE Investment Funds Regulations (Regulations) which will come into effect when published in the Official Gazette (which is expected imminently); readers should note, however, that SCA is currently, in practice, applying the provisions of the Regulations.

Why are the Regulations important?

The changes to the investment funds regime in the UAE have significant implications for (a) UAE investment funds, (b) DFSA regulated promoters of funds, (c) foreign funds and (d) the promoters of foreign funds. The Regulations will, among other things, alter the way in which foreign funds are promoted onshore in the UAE.

What do the Regulations cover?

The Regulations apply to all aspects of local UAE funds and the marketing of foreign funds in the UAE. In this updater, we focus on how the Regulations apply to the marketing of foreign funds.

Are any approvals required to market foreign funds in the UAE?

All foreign funds which are to be marketed to investors in the UAE will need SCA approval. SCA has taken on board comments by interested parties that it should distinguish between a public offering of foreign funds and the private placement of a foreign fund and the Regulations set out specific provisions for each.

What are the criteria to make a public offer of a foreign fund?

  • To be eligible to apply to SCA for approval of the offer:
    • the foreign fund must be subject to the supervision of a regulatory authority in its home jurisdiction which has a similar status to SCA; and
    • the foreign fund must be licensed in its home jurisdiction to make a public offer of its units in that jurisdiction.
  • In addition, SCA has the right to impose conditions, grant exemptions and request further information in its discretion.

What are the criteria for a private placement of a foreign fund?

The foreign fund requires SCA approval.

Who is permitted to promote a foreign fund in the UAE?

The units in foreign funds may only be promoted (by way of public offer or private placement) in the UAE by the following locally licensed entities:

  • banks and investment companies licensed by the Central Bank; and
  • companies licensed by SCA to carry out such activities.

As an exception to the above, the private placement of a foreign fund may be carried out by a representative office of the foreign company in the UAE. In such circumstances, however, the promotion can only be made to a corporate investor with a minimum subscription amount of AED 10 million.

What are the obligations of a locally licensed placing agent?

There are many obligations on the locally licensed-placing agent including obligations relating to the distribution/availability of information to investors in the UAE and maintaining information about investors. Two of the more onerous obligations are an obligation on the local promoter to carry out due diligence on a foreign fund that it is considering promoting in the UAE and an obligation to continue to monitor the foreign fund’s performance in order to protect investor’s funds; such obligations raise a number of important queries for local placing agents referred to in the “Comments” section below.

Are there any restrictions on how the foreign fund can be promoted?

  • A public offering can be conducted by all means available and to all investors.
  • A private placement is limited to direct contact with pre-determined persons.

Are there minimum subscription levels for investors in such foreign funds?

  • The minimum subscription for an investor in a public offer of a foreign fund in the UAE will be set out in the Offering Memorandum.
  • The minimum subscription for an investor in a private placing of a foreign fund in the UAE is:
    • AED 500,000 in respect of foreign funds; and
    • AED 1 million in respect of investment funds established in free zones outside of the UAE.

No guidance is given in the Regulations on what jurisdictions constitute “a free zone outside the UAE”. This is expected to be a reference to offshore financial centres, such as Jersey and the Cayman Islands.

  • There are the following limited exceptions to the minimum subscription levels referred to above for a private placement:
    • where the subscriber is an SCA authorised investment manager subscribing on behalf of a client for whom it undertakes discretionary portfolio management; and
    • where the subscription is made under a savings and investment plan that meets the relevant SCA criteria.

Where one of these exceptions applies, the minimum subscription level will be the one set out in the Offering Memorandum.

Will special types of funds be treated differently, for example, real estate funds and exchange traded funds?

The Regulations indicate that SCA will issue further regulations that will apply to these types of funds.


SCA first published and circulated draft investment fund regulations in January 2011. The draft gave rise to a great deal of concern by interested parties; the length of time it has taken to issue the Regulations shows that SCA has given a good deal of consideration to such concerns. Some of the initial concerns have been addressed in the final Regulations, such as the Regulations should distinguish between a public offer and a private placement and that it would be unduly onerous for a locally licensed placing agent to indemnify investors against all non-commercial risk arising from an investment.

On the other hand, many concerns about the implications of provisions of the Regulations still exist and, in addition, various new queries have been raised. For example:

  • Is the Central Bank Board of Directors Resolution no. 164/8/94, as amended, (which relates to the regulation of investment fund activity in the UAE by the Central Bank) to be repealed?
  • How will a locally licensed placing agent know that it has carried out sufficient due diligence on a foreign fund to satisfy the requirements of Article 39(1) of the Regulations?
  • Although the Regulations state that the SCA will licence a Representative Office of a foreign company to act as placing agent for the units of a foreign fund in the UAE, it is not clear which entity is eligible to set up such a presence. For example, would it include the founder or operator of the foreign fund?


In the past, foreign companies have conducted a limited amount of cross-border marketing of investment funds to a select number of sophisticated investors in the UAE, and this practice has been tolerated by the Central Bank. The Regulations do not, however, provide for any such exemption. Indeed, SCA has informed us that they are not operating any such practice, and will contact a foreign company’s home regulator if they become aware of any such activities.

The Regulations will also affect placing agents licensed by the DFSA; such firms will need to carefully consider the ambit of their DFSA licence and their ability to deal with “onshore” clients.

What happens now?

There are many interested parties who will continue to engage with SCA to seek clarification about the Regulations and, possibly, exemptions from the application of the Regulations.

The Regulations should also be seen in the context of a proposed GCC wide investment funds initiative. We understand that the governments of GCC Member States are expected to approve non-binding GCC Investment Funds Regulations which would facilitate a passporting system for the marketing of funds domiciled within the GCC.

We also understand that the changes introduced by the Regulations are the first in a series of changes being driven by the UAE Ministry of Finance; so we expect further regulatory changes in the onshore financial services sector.



Jane Clayton

Jane Clayton