01 March, 2017

Dubai International Financial Center (DIFC) is a free zone in Dubai specially focused to financial service providers and for providing a platform to these organizations to reach the emerging opportunities in Middle East. It functions within its own set of rules and regulations specially designed for companies registered under it.

It recognises the laws of UAE, both at the level of Dubai as well as federal but at the same time designated to have its own commercial and legal framework to be in line with the international standards considering it being the hub for transnational players in the region.

The DIFC keeps reviewing and updating the rules and regulation to match the pace of development and evolution in the region and to adapt the unique needs to businesses operating here. This article aims to highlight the recent changes brought in by DIFC authority.

New Intermediate Special Purpose Vehicle (SPV)

The Dubai Financial Service Authority (DFSA) and DIFC held a joint seminar on 31st October on organising and structuring the new ‘Intermediate SPV’ regime with the focus being on fund structuring.

The Intermediate SPV is a recent addition by the DIFC Authority which allows a cost effective option for establishing SPVs in the DIFC (i.e., US$1,000). This is not just in respect of financial structures but also consists of special features helpful across the globe.

There has been the option to establish Special Purpose Companies in the DIFC previously, and this option remains, but these are comparatively cost effective and process-heavy to set up. The new Intermediate SPVs will be economical and easier to establish. No change of rules and regulations or Laws has occurred up till now, but the entities are accessible now through standardised waivers which will apply when an application is made to the DIFC Authority.

However, the Intermediate SPVs will only be available to entities that already have a substantive existence in the DIFC (i.e., fund managers, asset managers, family offices etc.).

This development is quite similar to what the Abu Dhabi Global Market (ADGM) offers by way of SPVs and will make life affordable and easier as far as structuring options go for existing DIFC entities, but doesn’t go quite as far as the ADGM regime due to the requirement to already have a registered DIFC business.

Dubai Financial Service Authority concerns over Authorised Firm’s licensed activities

On the 18 of October 2016 the DFSA accepted an Undertaking Enforceable from an Authorised Firm as a consequence the firm’s anti-money laundering systems and controls, and about whether it had carried out the Financial Service of Providing Custody to its clients without being registered to do so. Although the firm did not agree with the DFSA’s conclusions but it acknowledges the DFSA’s concerns and agrees to engage an independent expert to ensure that the concerns are resolved.

The firm has also agreed to pay penalty of USD 60,000 to the DFSA of which USD 30,000 is payable on or before 17 of November 2016. The remaining USD 30,000 is suspended indefinitely and becomes payable if the company fails to comply with the Enforceable Undertaking.

Future Amendments to DFSA Legislation

To complete our summary of regulatory new updates in the DIFC, we also feel importance to mention the following proposed amendments to the DFSA Rulebook that have been mentioned in the below listed consultation papers. Please note all of these consultation papers have finished their consultation period and the anticipated amendments to the DFSA Rulebook will be instigated when the relevant Rulemaking instruments are issued by the DFSA. Also, note the below summary of the changes that each Consultation paper has proposed may change. Therefore, ultimately only the text of the amended Rulebook and/or Law as published can be trusted upon.


The DFSA issued Consultation paper 106 due to what they felt was a lack of clarity in some sections of rules and regulation. Therefore, Consultation paper 106 proposes to provide greater elucidation to the meaning and scope of ‘arranging’ related Financial Services, Operating a Representative Office and the Financial Promotions rule.

The Consultation paper 106 proposes to make the following changes:

  • To discrete the Financial Service of ‘Arranging Credit’ from that of ‘Arranging Deals in Investments’
  • To Refine the Financial Promotions regime to minimise the risk of abuse of that regime.
  • To discrete the Financial Service of ‘Advising on Credit’ from that of ‘Advising on Financial Products’
  • To Combine arranging and advising activities relating to credit into a new separate Financial Service of ‘Arranging and Advising on Credit’;
  • Providing clarity on how arranging activities can be distinguished from the Financial Services or Financial products to which that activity relates, such as the distinction between:
    • Dealing in Investments as Agent’ and ‘Arranging Deals in Investments’ and
    • ‘Providing Custody’ and ‘Arranging Custody’.
  • To provide for some changes to the activities excluded from regulation under arranging and advising;
  • Introducing explanations about what Financial Services an Insurance Broker and an Insurance Agent;
  • To provide guidance to create clarity about the intended scope of a Representative Office license;
  • To Remove the application of the Client Asset provisions to firms ‘Arranging Custody’; and

In light of the above proposals, when they come in force, some approved Firms may need Licenses for a different type of activity than they currently hold. It is proposed that the DFSA would generally permit a period of six months for the firms to comply with the necessary formalities to obtain the right type of License.

Representative Offices and persons carrying out Financial Promotions which act beyond DFSA issued license, as would be clarified under these proposals, would need to conclude such activities immediately.


In consultation paper 108 the DFSA is proposing amendments to the requirements of the capital for managers of collective investment funds and amendments to the regulations about reporting suspicions of market misuse.

In relation to capital requirements for managers, it is proposed to leave the required expenditure based capital minimum as it is. However, the DFSA proposes to decrease
the Base Capital Requirement for:

  1. managers of Public Funds to USD 140,000; and
  2. managers of Exempt Funds and QIFs to USD 70,000

An obligation to report doubts of market abuse to the DFSA is currently imposed on market operatives. For instance: Operators of Authorised Market Institutions and of Alternative Trading Systems. However, there is no clear restriction on Authorised Firms to report suspicions of market abuse by others for whom the firm may be acting. Therefore, the DFSA proposes to amend Rulebook so that Authorised Firms and Recognised Members are under an explicit obligation to report suspicions of market abuse to the DFSA.

By Dhruti Thakkar- Consultant, Corporate Service & Compliance at N R Doshi & Partners

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