FAQ: HEDGE FUNDS IN UAE
1. What is the legal framework which regulates Hedge funds?
Within the UAE, there are no differences between types of hedge funds that are available, although there is a distinction made between those funds domiciled in differing jurisdictions. This distinction entails that there is a difference between those in the Dubai International Financial Centre (DIFC), those in the UAE, commonly known as ‘UAE Mainl hbband,' and those in the Abu Dhabi Global Market (ADGM).
Both of these jurisdictions have their legal framework for the regulating of hedge funds and other financial activities, and the Laws are as such:
The governance of the UAE Central Bank is under The Federal Law Number 10 of 1980 (the Banking Law), and this law provides the Central Bank with authority to regulate the financial services across the country. The Primary legislation within this piece of legislation is as follows:
- Central Bank Resolution 164/A/94, which concerns the regulation of financial companies and banking, and investment and financial consultation establishment of companies;
- Central Bank Resolution 89/3/2000 regarding the amendment to the rule of investment companies and banking and financial investment consultation companies;
- Central Bank Resolution 58/3/96 which concerns the regulation of financial companies;
- Central Bank Resolution 21/2/88 with regards to the system of investment banks within the country;
- Securities Commodities Authority (SCA) Resolution Number 3 of 2000 concerning regulations on disclosure and transparency;
- SCA Resolution Number 4 of 2000 regarding the Emirates SCA and market;
- SCA Resolution Number 48 of 2008, which relates to financial advice and analysis;
SCA Resolution Number 37 of 2012 concerning regulations as to mutual funds;
The DFSA administered DIFC laws on the matter of regulating hedge funds within the jurisdiction of the DIFC market. The specific provisions are the DIFC Law 12 of 2004 which concerned judicial authority in DIFC (the Judicial Authority Law), DIFC Law 1 of 2004 regarding regulations (the Regulatory Law), and also the DIFC Law 1 of 2006 which relates to collective investment (the Collective Investment Law). Beyond these laws, the DFS A Rulebook contains multiple relevant modules on such areas as the Collective Investment Rules and Offered Securities Rules.
The laws on the matter within the ADGM are as follows
- Financial Services and Markets Regulations 2015 (the amendment of such in 2017);
- The Common Reporting Standard Regulations 2017
The number of funds domiciled within the AE mainland is relatively low when compared to both the DIFC and ADGM. Both the other two are preferred by foreign investors, which is due in part to lack of a majority local ownership by a UAE national.
DIFC and ADGM attract foreign investment by offering a wide variety of corporate structures including LLC, Company limited by shares, investment companies, and partnerships to name a few
It is also an option to register a branch of a foreign corporation or organization within the DIFC, though it is still the case that the DIFC has had a problem in attracting fund managers.
2. What are the authorities responsible for governing hedge funds in UAE?
The establishment of the Central Bank of UAE was through Federal Law 10 of 1980 (the Banking Law) and the SCA, which establishment took place under the Federal Decree 4 of 2000, share the responsibility of regulating the financial activities on the mainland. This regulation, of course, includes hedge funds. The SCA has the responsibility to oversee the functions with regards to listed securities and promoting of foreign funds
The establishment of the Dubai Financial and Services Authority (DFSA) took place in 2004 under the DIFC law Number 1, governs financial center activities in the DIFC. Any matters relating to hedge funds or similar are handled by the DIFC as mentioned above legal and regulatory system, and the courts and arbitration centers of the DIFC adjudicate the matters thereof
The Financial Services Regulatory Authority(FSRA) governs and regulates the financial activities within the ADGM free zone