While it is clearly far too early to quantify the impact these news rule will have on the market, there have been fairly consistent predictions from industry commentators that the number of firms will decrease dramatically over the coming months as the cost of doing business begins to bite.
The reasons for these predictions are clear. By making it a requirement for firms not only to now have at least AED3m (£500,000, $800,000) and a bank guarantee of the same amount, but to have designated people fulfilling non-sales roles within the company, only those with sufficient scale will survive.
Eradicating these smaller insurance brokerages in the UAE was clearly an aim of the Insurance Authority, although it is likely the initiative was actually aimed at those small firms selling general insurance and who, allegedly, have a propensity not to actually arrange the cover promised.
Whether making it unsustainable for smaller advisory firms to conduct business was the intention or not, these new rules are here and they are likely to shrink the number of advisory firms operating in the UAE.
Is this ultimately good for the client? There are two distinct schools of thought on this. Perhaps the route down which the Insurance Authority has gone is to assume that bigger is always better as larger companies are able to meet financial commitments if things go wrong and are more likely to continue to exit.
The other school of thought is that, in some cases, smaller, more focused, boutique advisory companies are able to offer more tailored solutions as they build more personal and close relationships with their clients.
As ever, the answer probably lies somewhere in the middle, with a well-capitalised, professional company able to provide tailored financial advice. Whether a model like will be able to survive in the new environment remains to be seen.
The UAE is of course not alone in bringing in new regulations and similar scenarios are being played out in many markets around the world.
To refresh your memory on the new rules, when they were first mooted and what they mean click on the links below.
August 2012 – a draft of the new rules was published
February 2014 – details of the revised rules emerged having been signed into law earlier in the month
Friends Provident International’s regional compliance and risk officer Taher Fakhri breaks down what the new rules will mean for brokers in this two part feature
In May, leading figures from the local asset management industry discussed what the rules will mean for distribution
