Establishing a DFSA Category 3A and Category 4 licence in Dubai in 2023
In the last couple of decades, the United Arab Emirates (UAE) has exponentially grown into an international business hub for the world. In particular, Dubai has managed to attract some of the world’s most successful investment firms, funds, fintechs, and venture capital investment funds.
A key contributing factor to their financial success over the years has been due to the independent regulatory authority, the Dubai Financial Services Authority (DFSA). The DFSA is responsible for regulating all financial and ancillary services in Dubai. The DFSA cohesively operates with the Dubai International Financial Centre (DIFC) to ensure the smooth functioning of its regulated financial hub.
In the following commentary, the Licensing team at SALVUS outlines requirements for obtaining Category 3A or Category 4 financial license in alignment with the DFSA and DIFC, and how the two categories compare. We also mention our approach to helping you obtain your desired license suitable to your particular business needs.
Moreover, our Licensing team provides information about the advantages of operating a business in the DIFC, the DFSA’s vision and regulatory approach, and finally some advice from the DFSA themselves in becoming a licensed investment firm, investment fund, Electronic Money Institution (EMI) or any other type of financial services provider.
1. DFSA Category 3A license requirements and authorisation
2. DFSA Category 4 license requirements and authorisation
3. How Category 4A and Category 4 licenses compare
4. Obtaining a DFSA Category 3A or DFSA Category 4 license with SALVUS
5. Advantages of operating a business in the DIFC
6. The DFSA’s vision and regulatory approach
7. Advice from the DFSA for becoming a licensed entity
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1. The DFSA Category 3A license
The Category 3A license issued by the DFSA authorises an investment firm to carry out the financial services of:
- Dealing in Investment as Principal (on a Matched Principal basis only),
- Arranging Deals in Investments,
- Advising on Financial products.
The entity to be licensed must be incorporated in Dubai’s International Financial Centre and can be a subsidiary of a regulated entity in other approved jurisdictions. The entity can onboard retail clients through a Retail Clients license endorsement and can hold and/or control client funds or assets through a Client Assets license endorsement – both endorsements issued by the DFSA.
The minimum capital requirement for DFSA Category 3A licensed entities is 500,000 USD and in our experience, the DFSA Category 3A licensing procedure can be concluded in 8 to 12 months.
2. The DFSA Category 4 license
The Category 4 license issued by the DFSA, authorises an investment firm to carry out the financial service of:
- Arranging Deals in Investments,
- Advising on Financial Products.
The entity to be licensed must be incorporated in the DIFC and can be a subsidiary of a regulated entity in approved jurisdictions. A Category 4 licensed entity can onboard retail clients through a Retail Clients regulatory license endorsement issued by the DFSA, however, it cannot hold and/or control client funds or assets.
The minimum capital requirement for DFSA Category 4 licensed entities is 10,000 USD, and in our experience, the DFSA licensing procedure can be concluded in 6 to 8 months.
3. How the Category 3A and Category 4 licenses compare
| Features | Category 3A | Category 4 |
|---|---|---|
| Key differences | Allowed to act as a traditional broker | Allows the license holder to be a facilitator of transactions but has no authority to bind parties to the transaction |
| Fees | • ~23,000 USD in total for DIFC set-up & 15,000 USD recurring annually • 20,000 USD as a one-off fee to DFSA for onboarding retail clients • 25,000 USD or 50,000 USD as a one-off application fee to DFSA depending on the structure of the applying entity • 25,000 USD plus 1,000 USD for each 1,000,000 of expenditure and 1,000 USD for each additional financial service specified on the license in annual renewal fees payable to the DFSA | • ~23,000 USD in total for DIFC set-up & 15,000 USD recurring annually • 20,000 USD as a one-off fee to DFSA for onboarding retail clients • 15,000 USD or 30,000 USD as a one-off application fee to DFSA depending on the structure of the applying entity • 15,000 USD plus 1,000 USD for each 1,000,000 of expenditure and 1,000 USD for each additional financial service specified on the license in annual renewal fees payable to the DFSA |
| Minimum Regulatory Capital Required | 500,000 USD | 10,000 USD |
| Licensing timeframe | approx. 12 months | approx. 6 months |
| Permitted to hold and/or control client funds or assets | Yes, through a one-off 5,000 USD Client Assets regulatory license endorsement fee to the DFSA | No |
| Additional notable requirements | • Office in the DIFC • Resident AMLRO and SEO • Audit | • Office in the DIFC • Resident AMLRO and SEO • Audit |
4. Obtaining a DFSA Category 3A or DFSA Category 4 license with SALVUS
Our SALVUS Licenisng team uses a project management approach to handle such engagements. We lead the engagement for our clients and work collaboratively to gather and analyse internal data while producing all required documentation for the successful submission of a complete licensing application.
Using our experience in dealing with the DFSA for previous Category 3A and Category 4 licensing applications, we aim to predict and resolve all possible queries from the regulatory authorities in advance. This ensures our clients are well-prepared for regulatory scrutiny during their application process to becoming a DFSA Category 3A or Category 4 licensed entity.
5. The advantages of operating a business in the Dubai International Financial Centre
Setting up and operating a business in the Dubai International Financial Centre has numerous advantages. The DIFC prides itself on having built its legislative framework upon modelling frameworks used in the global financial hubs of New York and London. The rationale behind the implementation of similar models within Dubai is that these models have proven extremely successful and flexible in all kinds of business cycles. Furthermore, the DIFC wanted to ensure businesses commencing operations within their jurisdiction have a robust and the same time, familiar financial legal framework to grow their firms.
Additionally, the enticing tax regime instilled in the UAE is worth mentioning. Great relationships with their vast and high-profile networks, comprised of central banks and regulators, have allowed the DIFC to implement several double taxation avoidance treaties while keeping taxes to the minimum: VAT of just 5% and CIT of just 9% on income above AED 375’000. Furthermore, employee salaries are not taxed, ensuring favourable conditions for attracting top talent.
As a consequence, the DIFC is attracting high-end clientele in the region’s comprehensive financial ecosystem. The DIFC hosts an abundance of international wealth management firms, law firms, and financial institutions and due to its geographic location, UAE enables these firms to conduct business during worldwide operating hours.
6. The Dubai Financial Services Authority vision and regulatory approach
The DFSA’s vision is “to be an internationally respected regulator, leading the development of financial services through strong and fair regulation”. The DFSA follows a risk-based regulatory approach. The independent regulator directs and prioritises their resources to prevent unacceptable and unnecessary risks. Thus, the DFSA is committed to ensuring a high level of competence across all functions related to their administrative and consultative procedures, while also commanding respect amongst the market participants in the region and across the globe.
7. Advice from the regulator for becoming a licensed entity
Preparing the necessary documentation and paperwork for submitting an application has to be taken seriously. Whether you are a start-up investment firm or an established payment institution wanting to branch out into Dubai’s International Financial Centre and grow your business, it is important to prepare in advance.
Submitting the DFSA’s most up-to-date application forms will help avoid outdated requirements and having to re-do the procedure. Additionally, ensure the business activities to be provided are indeed recognised by the DFSA and correspond to specific financial and ancillary services. If you are unsure whether or not your business activities fall under DFSA’s regulation, be sure to review this with the DFSA, DIFC or an expert consultancy firm such as SALVUS.
SALVUS will work closely with you to determine the best possible solution for your business needs in the region. SALVUS is committed to ensuring you apply to the DIFC and DFSA well-prepared and ready to satisfy the regulatory requirements.
Our Licensing team is ready to listen to the specific needs and challenges of your business. We can then work together to overcome them. Our team carries vast experience in all matters associated with licensing across the UAE and other key areas of the region.
Contact us at info@salvusfunds.com to discuss your DFSA Category 3A or Category 4 licensing requirements; our SALVUS Licensing team looks forward to being of value.
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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.