In early 2023 the UAE Security and Commodities Authority ("SCA") once again updated its investment funds regime with the release of a number of new SCA regulations. This was just the latest in a series of updates and overhauls impacting the marketing of foreign investment funds into the UAE that have taken place over the past decade.
Cross-border marketing continues
Notwithstanding initial concerns and uncertainties associated with each update and overhaul (including surrounding the updates earlier this year), by and large the status quo surrounding cross-border activities has remained unchanged over the past decade in regards to offering foreign investment funds into the UAE with limited UAE regulatory impact.
The most recent SCA regulations concerning the promotion of foreign investment funds into the UAE have been in place approximately six months now, and the below provides a refresher on the background and current approach to marketing and placement of foreign investment funds in the UAE.
A decade of regulatory updates and overhauls
The UAE has traditionally been one of the most lightly regulated
jurisdictions in the region regarding the marketing of foreign
investment funds. Up until 2012, the marketing of all types of
foreign financial products and services in the UAE was undertaken
on a wide scale cross-border basis. This was in line with a fairly
standard set of 'dos and don'ts' rather than under any
particular law or regulatory approval (e.g., restricting marketing
to pre-identified sophisticated investors and restricting time and
footprint in-country when conducting 'flyin-
fly-out' visits).
2012 developments
The position changed in 2012 with the introduction of fund specific SCA regulations which initiated focused regulation on foreign investment funds. However, the regulations only applied to activities within the UAE and a subsequent amendment provided for specific private placement exceptions (i.e. where dealing with sovereign wealth funds and in instances of reverse solicitation). Thus, the ability to market on a true cross-border basis remained largely unaffected with some viewing the specific private placement exceptions as an additional 'nice to have'.
2016 developments
In 2016, the SCA replaced the 2012 fund regulations. The majority of that overhaul affected locally domiciled UAE investment funds only, while stripping out the provisions relating to the promotion of foreign investment funds which were to be covered by anticipated general promotion and introduction regulations. As under the 2012 regulations, the ability to market on a cross-border basis remained largely unchanged under the 2016 fund regulations
2017 developments
In 2017, the SCA released the anticipated general promotion and introduction regulations which provided the regulation of all promotion and introduction activities associated with local and foreign financial services and products (including foreign investment funds). The 2017 regulations expanded the available private placement exceptions to include marketing to newly defined "Qualified Investors", thus broadening the exceptions to include promotion of financial products and services to institutions and investors represented by licensed investment managers.
2021 developments
In 2021, the SCA overhauled its regime governing financial services activities, investment funds and financial promotions in the UAE consolidating a variety of formerly disjointed regulations. The 2021 regulations replaced the 2017 promotion regulations and large parts of the 2016 fund regulations, and brought in even broader private placement exceptions than the 2017 regulations with the introduction of a "Professional Investor" definition which extended the exceptions as far as individuals meeting an approximately US$1 million liquid wealth threshold in addition to reverse solicitation and other categories – this effectively aligned the UAE onshore private placement exceptions with the relatively permissive codified cross-border regimes of the DIFC and the ADGM. However, there was not a lot of change in approach at a practical level due to the continued market practice of operating on a cross-border basis.
2023 developments
The 2021 regulations have gone through a number of updates since their promulgation, and most significantly at the start of 2023 the SCA overhauled its fund regime with a suite of new amendment regulations which included specific targeting of foreign investment funds. The 2023 suite of amendment regulations were a part of the SCA's announced intention in late 2022 to reinvigorate the local asset management industry. The 2023 regulations replaced the 2016 regulations with a reformulated and more comprehensive regime surrounding public and private investment funds in the UAE, updated the 2021 regulations and brought in a prohibition on the promotion of foreign public investment funds in the UAE. In addition, the 2023 amendments specifically excluded foreign funds from the "Professional Investor" private placement exception previously provided for in the 2021 regulations. As a result, the private placement exceptions now available in respect of the marketing of foreign investment funds into the UAE post the 2023 developments and updates have effectively been reset back to those available under the 2012 regulations.
Conclusion
Notwithstanding the various updates and overhauls and corollary changes to the available private placement exceptions over the past decade, as with the 2012, 2016 and 2017 regulations, the 2021 regulations and the latest 2023 developments and regulations only apply to activities undertaken within the UAE. As such, if UAE targeted investment fund marketing activities are undertaken on a true cross-border basis they will not be caught by UAE regulations which cover the marketing and placement of foreign investment funds within the UAE only. Developments over the past decade do, however, reflect an increasing focus by UAE regulators on this area and Gowling WLG continues to monitor developments.
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