Establishing an Authorised Firm in 2022 in Dubai

1. Why establish an AF in Dubai?

Located in the middle, between the global financial centres of the West – London and New York – and the East – Singapore, Honk-Kong, and Tokyo – Dubai is perfectly placed to narrow the time-zone gap of the international financial markets.

In establishing an investment services firm in Dubai, there are two important factors, the financial centre which is the DIFC and the regulator which is the DFSA;

• The DIFC onshore financial centre in Dubai, constructed with substantially attractive features, is playing a critical role in the region’s rapidly growing demand for financial services and is a fundamental element in business being established in Dubai. The DIFC operates under a unique legal framework, aligned with the English Common law, having developed its own particular civil and commercial laws and regulations, with no exception to the law governing the financial services regulation.
• The DFSA, the independent regulatory body, has built the applicable legislation model based on the legal frameworks used in the financial centres of New York and London, ensuring in this way the system’s stability and security.

A business operating in Dubai as part of the DIFC benefits from its attractive tax regime, where during a forty-year period zero taxes are applied on corporate income and profits, and the UAE’s wide range of double tax treaties can be vastly exploited. Moreover, applying no restrictions on capital or profit repatriation and no currency exchange controls, the DIFC offers great options to existing groups for the establishment of a branch or a subsidiary in the Middle East area.

2. What is the applicable Regulatory Framework?

The DFSA operates according to the provisions of the Regulatory Law 2004 and its subsequent amendments and is granted the responsibility of licensing, authorising, and registering any person that wishes to carry financial services in and out of the DIFC. Any AF or any applicant for a license to be an AF, which provides or wishes to provide financial services activities within the DIFC territory, is subject to requirements described within the DFSA Rulebook.

Being the sole independent regulatory authority of financial services in Dubai, the DFSA employs a risk-based regulatory framework by applying a continuous risk-management cycle that identifies and assesses compliance risks. The DFSA in this way systematically monitors regional and international financial markets and trends for emerging risks that may occur from either inside or outside the DIFC.

3. What are the licensing requirements?

In addition to the below details, investment firms that wish to be authorised for Dealing in Investment as Principal and/or Arranging Deals in Investments are obliged to be incorporated in the DIFC and always maintain the required minimum regulatory capital. More information on obtaining a DFSA Category 3A and Category 4 license can be found here, along with a comparison between the applicable fees and the features of the two licenses.

Generally, to become an Authorised Firm, an applicant must demonstrate satisfactory evidence to the DFSA that the following requirements are fulfilled:

• Adequate resources, including financial resources,
• Fit and proper, and
• Adequate compliance arrangements, including policies and procedures for complying with the applicable legal framework.

Concerning adequate resources, the DFSA considers:

1. How the applicant complies with the applicable provisions of the Prudential – Investment, Insurance Intermediation and Banking Module (PIB) or the Prudential – Insurance Business Module (PIN).
2. The provisions which the applicant takes regarding any contingent or future liabilities.
3. The means used by the applicant and other members of its Group of entities to manage the risk connected to their business.
4. The rationale and the basis behind the applicant’s business plan.

For assessing the applicant’s fit and proper, the DFSA examines:

1. The applicant’s Governing Body fitness and propriety.
2. The suitability of the applicant’s Controllers.
3. The impact that a Controller might have on the applicant’s ability to comply with the applicable requirements.
4. The Financial Services concerned.
5. The applicant’s activities and any associated risks that may pose to the DFSA’s objectives.
6. Whether the applicant’s affairs will be conducted and managed in a sound and prudent manner.
7. Any matter which may harm the integrity and reputation of DFSA and DIFC.

Lastly, regarding the applicant’s compliance arrangements, the DFSA requires the following:

1. Clear and comprehensive policies and procedures relating to compliance with all applicable legal requirements including the DFSA Rules.
2. Adequate means to implement the mentioned policies and procedures and monitor their operating efficiency.

4. The DFSA Rulebook and the 12 governing principles

A set of twelve principles has been adopted as a general statement of fundamental regulatory requirements which govern the business objectives and operations of an AF, as per the DFSA Rulebook. These principles for an AF are:

Principle 1 – Integrity: establish high integrity and fair dealing standards.

Principle 2 – Due skill, care, and diligence: always act with due skill, care and diligence when conducting business activities.

Principle 3 – Management, systems, and controls: ensure that its senior management runs its affairs effectively and responsibly and maintains adequate systems and controls which ensure compliance with the DIFC legislation.

Principle 4 – Resources: maintain adequate and competent resources for conducting and managing its affairs, including but not limited to financial, system, and human resources.

Principle 5 – Market conduct: establish proper standards of conduct in financial markets.

Principle 6 – Information and interests: always consider customer interests and communicate any information to them in a clear, fair, and not misleading manner.

Principle 7 – Conflict of interests: take all appropriate steps to ensure that conflicts of interest between itself, its employees and its customers are identified and consequently prevented, managed, or disclosed.

Principle 8 – Suitability: take reasonable care to ensure the suitability of its advice and discretionary decisions to its customers who rely on its judgement.

Principle 9 – Customer assets and money: must ensure appropriate arrangements for proper protection of customer assets or money in case it has control over them or is responsible for their safeguard.

Principle 10 – Relation with regulators: adopt an open and cooperative manner when dealing with Regulators, and promptly inform the DFSA of significant events or any other matter of which the DFSA would reasonably expect to be notified.

Principle 11 – Compliance with high standards of corporate governance: maintain a corporate framework based on the nature, scale, and complexity of its business and structure, sufficient to promote sound and prudent management and oversight.

Principle 12 – Remuneration practices: maintain adequate remuneration structure and strategies taking into consideration its business’s nature, scale, and complexity as well as its long-term interests.

Generally, the above principles set the foundations on which more specific rules build upon and apply along with other rules in case of new and unforeseen situations.

5. How can SALVUS support you during the licensing procedure?

The SALVUS Investment Firms Licensing team is applying its well-designed project management process when dealing with licensing projects. In this respect, we work in coordination with our client’s team for collecting all the required information and prepare the necessary paperwork for submitting a complete and well-supported application.

Our Licensing team has the knowledge and expertise to determine whether the client’s business activities are subject to the DFSA’s regulation and its prescribed financial and ancillary services. Furthermore, we employ our experience in allocating efficiently our client’s financial resources, creating a cost-effective combination of employees, outsourcing arrangements, and external third parties which need to be involved.

If you are interested in acquiring a DFSA license or you would like more information about licensing across the UAE, contact us at info@salvusfunds.com or call us at +357 7000 7898.

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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.