As reported, the fees will be paid for by the actual distributor of the fund, rather than the asset manager, and will escalate in price if the fund is domiciled outside the UAE. While not official yet, it is anticipated the measures will be “Gazetted” imminently – meaning they will become law.
The new measures from the Emirates Securities & Commodities Authority (ESCA) are being introduced as part of wider government plans to more heavily regulate the distribution of financial products in a country which has only recently achieved “emerging market status” from the MSCI.
However, while many in the financial services industry are happy to see regulations being brought more into line with what is commonplace elsewhere, many see this latest development as ill-thought-out and a step too far.
There are two main issues with the new rules as they stand; namely that the onus being put on the distributor to pay for a fund’s registration and distribution is wrong and that the fees are excessive when compared with other markets.
These issues, according to some within the industry, may lead to investors being offered less choice or being charged more because banks, which distribute most of the funds in the UAE, are put off from registering large numbers of funds and want to pass on the costs.
Furthermore, some international asset managers may be discouraged from expanding or continuing to do business within the UAE because, with fund ranges domiciled outside the country, they will have to pay higher fees.
According to ESCA’s website, there are more than 400 foreign funds so far registered for sale in the UAE from asset managers including well-known names such as Schroders, HSBC Global Asset Management, Franklin Templeton and Fidelity – all companies with a sizeable presence in the region.
In comparison, only seven locally domiciled funds have been registered.
However, in addition to the international companies with an established presence in the UAE, there are a number of companies, such as M&G, Henderson, Aberdeen, BNY Mellon, BNP Paribas, JP Morgan Asset Management and Threadneedle, who have either one or only a handful of funds registered for sale in the country. Will these companies continue to have funds registered for sale in the UAE after the new fee regime is implemented?
As outlined above, the new fees are to be borne by the fund distributor rather than the asset management companies, however, it has been suggested the distributors may ultimately expect the asset managers to pick up the tab.
According to one local commentator, this is quite likely. Nigel Sillitoe, chief executive of Insight Discovery, recently told International Adviser: “I expect the banks and other distributors to ask asset management companies to pay ESCA’s fees, which will be yet another cost to be borne by asset management companies operating in the retail space.
“The most likely outcome is that asset management companies will negotiate sales targets with distributors who pass on these ESCA fees, another outcome, which is far less palatable, is that it could reduce the number of funds made available to consumers.”
It will be interested to see how many asset managers with smaller satellite operations in the UAE still have a presence in six months time.
Click here to read some initial thoughts from some in the asset management industry in the UAE
Tell us what you think using the comment box below
