The Securities and Commodities Authority (SCA) has published new mutual funds and mutual funds fees regulations in the Official Gazette of the UAE, which came into force on 1 August 2016.
Muneer Khan, the partner heading the Middle East financial regulatory practice at Simmons & Simmons, said the new regulations had only recently come to light due to a 5-week delay between the official publication and the availability of printed copies.
The new provisions of the Regulation of Mutual Funds in the UAE apply to investment funds and to all related parties.
New fees
The regulations, which update an existing law that goes back to 2002, mean that mutual funds that form the underlying investments of insurance-wrapped products promoted in the UAE are no longer exempt from the need to be registered with the SCA, and the requirement they be distributed by a locally authorised distributor.
It’s understood that the new rules have not been amended from the draft regulations circulated earlier this year.
These proposed that foreign funds being promoted to investors in the UAE as part of investment schemes linked to insurance contracts will incur a AED35,000, ($9,500, £7,200) registration fee and there will be a AED7,500 ($2,050) annual registration renewal charge.
The fees are fund specific and will be incurred for each new fund to be promoted in the UAE. Thus where a life company or platform wants to offer a large range of funds sold through wrappers and platforms, the fees are expected to be levied for each one.
Tom Bicknell, senior associate at international law firm Clyde & Co said he plans to meet with SCA shortly to get some clarity as to how the new rules will apply.
However, under Bicknell’s reading of the draft regulations any fund manager offering funds through an insurer did not previously have to pay a registration fee, but will going forward.
Industry impact
The new registration fee system has triggered a debate within the financial industry as to who should ultimately pay the fees, and whether the additional costs would lead to a sharp reduction in the number of funds available to investors.
The result could be that fund companies may close some of their funds to sales in the UAE, or reduce the number to just the large ones that can absorb the new cost.
International Adviser first reported a plan the SCA to introduce a series of fees for those who wish to register and distribute funds in the UAE back in August 2013 but these did not apply to funds which were part of insurance products, and the costs were generally passed on to the asset managers by the banks which sold the funds.
Nigel Sillitoe, chief executive of research firm Insight Discovery said that as the proposed SCA fees are high compared to other countries, it was inevitable that this will reduce the number of funds open to consumers.
“This is because an asset management company which currently has 30 registered funds will now only register funds which have the potential to be successfully marketed by their distributors,” he said.
