United Arab Emirates: Changes to the DFSA fees structure: a step towards self sufficiency

The Dubai International Financial Centre (DIFC) was established in 2004 as a special economic zone with the aim to develop it as a financial hub for the Middle East, Africa and South Asia. Since that time, it has developed a unique legal framework and a world-class regulatory environment overseen by the Dubai Financial Services Authority (DFSA) making it a desired place to do business.  Similar financial zones have emerged such as the Qatar Financial Centre (QFC) established in 2005 and the Abu Dhabi Global Market (ADGM) established in 2013.  With this competition, the DIFC has recognised the need to diversify, evolve and innovate to maintain the global standard that it has established and stay cost competitive.

In this article, we analyse the recent amendments issued on 4 July 2017 by the DFSA¹ pursuant to the Fees Module (FER) Instrument (No 207) 2017 (the Fees Module 2017), which come into effect from 1 January 2018 and how these amendments will impact existing regulated entities in the DIFC and any prospective new market entrants.

Background

The majority of the funding required to operate the DFSA comes from the Dubai Government and there is a long-term goal for the DFSA to become financially independent.  Leading up to implementation of the Fees Module 2017, the DFSA engaged in various public consultation and feedback sessions and seminars including Consultation Paper No 96 (August 2014), Consultation Paper No 100 (December 2014), and Consultation Paper No 110 (February 2017).

Fees for new businesses and add new financial services

The Fees Module 2017 introduced many changes, and the key provisions applicable to new entrants establishing a regulated entity in the DIFC are as follows:

• Whilst the application fee remains largely unchanged, the fees for issuing endorsements for allowing existing entities to carry out additional financial services have been increased as follows:
  • the fees for being licensed as a Trade Repository has been increased from USD 5,000 to USD 15,000; and
  • the fees for allowing the authorised entity to carry out financial services business with a Retail Client has been increased from USD 5,000 to USD 20,000.
• Applicants falling within any of the following categories are required to pay an additional 100% of the standard licensing fee:
  • the applicant has a corporate structure with multiple levels (including the applicant's level) or members in its Group which are incorporated in two or more jurisdictions (excluding the DIFC);
  • the applicant has, or proposes to establish, a Holding Company in the DIFC;
  • the applicant is from a jurisdiction, or intends to carry on business from the DIFC in a jurisdiction, where there is no bilateral memorandum of understanding between the DFSA and the relevant Financial Services Regulator in that jurisdiction;
  • the DFSA will act as the consolidated prudential supervisor of the applicant's Financial Group; or
  • the DFSA will act as the lead supervisor of part of the applicant's Group.
• Keeping up with the technological advancements and the corresponding market developments, the DFSA has introduced a new category for crowdfunding platforms. Also, as an initiative to attract more players in the Fintech space, the licensing fees is relatively low at USD 5,000. The subsequent annual fee has been fixed at USD 10,000.

Fees for existing businesses

Fees Module 2017 introduces various modification that apply to existing business regulated by the DFSA including inter alia the following:

• If an Authorised Firm applies to the DFSA to amend the scope of authorisation under its Licence, the fees has been increased from USD 5,000 to USD 10,000;
• The Annual Fees for licensed entities carrying out the following services and operations has increased:

• In addition there are a number of ancillary changes that will impact the overall costs of running businesses in the DIFC which include, inter alia, the following:
  • Designated Non-Financial Businesses and Professions (DNFBP), (which includes the real estate developers, dealers in precious metal or stones, law firms, notary firms, accounting, auditors or family offices, who are not Authorised Firms) the annual fee has increased from USD 4,000 to USD 6,000;
  • An application for written approval to acquire or to increase its level of control in a Domestic Firm or to obtain written approval to become the Controller has a fee of (a) USD 5,000 if the application is complex; or (b) USD 3,000 in any other case;
  • An Authorised Person applying to have its licence withdrawn must pay to the DFSA an application fee of USD 5,000 (if various conditions apply);
  • For opening a branch or subsidiary in another jurisdiction, the entity must pay an amount equal to 50% of the annual license fee applicable to the entity;
  • On failure to provide the return or report on or before the due date or within the period specified, the DFSA will apply a late fee of USD 1,000 and for multiple filings these fees may be multiplied, subject to a maximum cap of USD 4,000.

Going forward

The Fees Module 2017 was issued after months of discussions and consultations. The initial drafts included several other fees and charges such as those for correcting mistakes in reports and applications, issuing paper licenses. However, the DFSA's efforts to go out to the market stakeholders, gather their feedback and carry out multiple consultations before finalising the draft demonstrates its commitment to create an open and transparent regulatory regime. This also puts the DFSA in the league of regulators who are responsive to the other stakeholders rather than only regulating them, and at the same time evolving themselves to be better equipped to meet the needs in the market.

Footnotes

1 The DFSA is the financial services regulator, which is responsible for licensing and operations of all regulated entities from and within the DIFC.

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