The moves follow the publication of new Mutual Fund laws from the Securities and Commodities Authority (SCA), that came into effect on 1 August but only came to light earlier this month, removing a previous exemption on paying registration fees for funds offered within life company products.
Brendan Dolan, regional director for Old Mutual International, Middle East and Africa, said: “While we are supportive of regulatory developments in the region that aim to create improved customer outcomes, more clarity is required on these proposals.”
Promotion is regulated
Muneer Khan, the partner heading the Middle East funds and financial markets regulatory practice at international law firm Simmons & Simmons said the two new mutual fund laws cover the promotion of funds and the registration fees and will apply in the UAE, but outside the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) financial free zones.
“Whether the fund is a new or an existing one, or it previously received investment from the UAE or not, a key purpose of these regulations is to cover fund promotion,” Khan said.
“Regulations that are aimed at improving customer outcomes have to be balanced so as not to hinder choice and flexibility."
“So any promotion of any mutual fund in the UAE is a regulated activity, unless it falls into one of the limited exemptions.”
The new fees of around $10,000 (£7,654, €8,916) for registration and $2,000 for the annual renewal are expected to have a dramatic effect on the funds available within wrappers sold in the UAE.
Muneer said: “If life insurance wrapped products with underlying funds are promoted and the underlying funds are not registered, we understand that would be a breach of the regulations.
“We are seeking to clarify whether there will be a grace period for such products.”
Promotion definition sought
What constitutes promotion is a key issue on which lawyers and fund companies are seeking clarification. For example, is it promotion if an asset manager is market testing a fund or talking to potential promoters?
However the new laws will work in practice, what is clear is that the additional costs of registering funds for sale as part of a life wrapper will impact on the range of funds offered.
“Regulations that are aimed at improving customer outcomes have to be balanced so as not to hinder choice and flexibility, and it will be interesting to see how these proposals develop,” said Old Mutual’s Dolan.
Sam Instone, chief executive of AES International, fears there could be some initial market confusion.
He said: “It’s unclear who should bear these costs, which fund houses and life companies may be the beneficiaries or losers and what the benefit may be for end consumers.”
More change seen
There could also be further changes coming in the UAE.
Muneer at Simmons & Simmons said that as the SCA’s “raison d’être” is to regulate financial services in the UAE outside the DIFC and ADGM, and that the mutual fund rules are only a taste of what is to come.
“We will be seeing other revisions to existing regulations covering financial services. This is an ongoing process,” he said.
This is a view shared by David Kneeshaw, chief executive of RL360°, who said: “There are rumours the UAE is thinking of bringing in commission disclosure, which is brilliant news.”
