SCA Financial Promotions and Introductions - A Q&A for foreign issuers
Authored by: Yasmene Cerfontyne
- The Regulation directly impacts conducting financial promotions, and introducing financial services activities, within the UAE.
- There is a general prohibition from carrying out promotions of financial products without being licensed, and introducing financial services or activities within the UAE that are not approved by SCA.
- There are a number of exceptions to the scope of application of the Regulation, relating to the type of issuer and type of promotion or introduction.
Following a period of consultation in 2016, the United Arab Emirates' (UAE) Securities and Commodities Authority (SCA) recently issued SCA Decision No 3/R.M of 2017 regulating promotion and introduction (the Regulation). The Regulation governs the promotion of financial products and the introduction of financial services and activities within the UAE.
The Regulation provides guidance in an area that has traditionally had much uncertainty for, among others, foreign non-UAE established and licensed financial promoters seeking to solicit investment within the UAE from UAE investors.
This Q & A considers five key messages from the Regulation for foreign non-UAE financial promoters.
1. When did the Regulation come into force, and what is its scope?
The Regulation was recently published on SCA’s website, and shall come into force the day following its publication in the UAE official gazette
The Regulation purports to govern all matters relating to carrying out promotions and introductions within the UAE.
Pursuant to the Regulation, a ‘promotion’ is the marketing, distribution, publicising or making available of any information or advertising materials relevant to a Financial Product by any means. An ‘introduction’ is described as introducing a person to another licensed by SCA (or a similar regulatory authority) for the purposes of obtaining a financial service.
The Regulation set out two basic prohibitions, namely:
- that Financial Products not listed on, or registered with, SCA may not be promoted; and
- services or financial activities, the introduction of which is not approved by SCA, may not be introduced in the UAE.
Whilst this appears to be a blanket prohibition, a number of exceptions are provided for within the Regulation.
For entities wishing to undertake promotions or introductions, the licensing and approval requirements (as applicable) and application procedure to become authorised by SCA to engage in these activities are set out within the Regulation.
2. What are Financial Products for the purposes of the Regulation and the prohibition on promoting Financial Products?
Financial Products are widely defined under the Regulation to include:
- securities, defined as the shares, bonds and notes issued by joint-stock companies, as well as bonds and notes issued by the federal or local government and public bodies and institutions in the UAE, along with any other local or foreign financial instruments approved by SCA;
- commodities contracts;
- restructured products; or
- any Foreign Securities, which are broadly defined under the Regulation as the shares, bonds, instruments and units of mutual funds, contracts of commodities and other securities or financial instruments issued by a foreign issuer.
3. Who is exempt from the impact of the Regulation?
Relief is granted to issuers, foreign companies and financial advisors, in accordance with the regulations on offering and issuing share of Public Joint Stock Companies (PJSCs), from a number of the provisions of the Regulations concerning SCA licensing requirements applicable to carrying out promotions, and SCA approval requirements applicable to making introductions.
Management companies promoting funds in accordance with the regulations on mutual funds are also granted relief from certain provisions of the Regulation.
The Regulation does not apply to, among others, the following:
- financial brokerage firms that obtain SCA’s approval to trade, on behalf of their customers, in foreign markets;
- the promotion of Financial Products that are listed on any market;
- the promotion of Financial Products of an Eligible Investor, with the exception of solvent natural persons who are financially able;
- the promotion of securities, commodities contracts, or derivatives issued by UAE federal or local government, governmental institutions and agencies, or companies wholly owned by any of them;
- ‘reverse promotion’, that is by the initiative of an investor inside the UAE that has requested to make an offer or purchase any specific Foreign Securities outside the UAE without being based on a promotion by the Foreign Issuer or its Promoters or distributors, and provided such reverse promotion is evidenced;
- introduction and promotion between parent company, subsidiary, sister company, and allied company, the relevant parties, or the joint group thereof;
- the intermediary introducer, in accordance with the Regulations on Listing and Trading Commodities and Commodities contracts.
4. Who an Eligible Investor?
The Regulation does not apply to an Eligible Investor, with the exclusion of natural solvent persons who are financial able.
The Regulation provides that an Eligible Investor is:
- an investor able to manage its own investments individually, such as:
- Federal and local government, governmental institutions and agencies or companies owned wholly by any of them;
- international agencies and organisations;
- a person licensed to engage in a commercial activity in the UAE, providing investment activities is one of its purposes;
- a natural solvent person whose annual income is no less than AED 1 million or has a net value of property amounting to AED 5 million (excluding their main residence), and who acknowledges that they have sufficient knowledge and expertise, whether alone or through a financial consultant, to evaluate the prospectus and risks and benefits associated therewith; and
- an investor represented by an investment manager licenced by SCA.
5. What is the impact of the Regulation?
The Regulation provides governance and guidelines in an area of historic ambiguity. Foreign and resident financial promoters seeking to solicit investment from within the UAE will need to do so in accordance with the Regulation, unless the offering or introduction falls outside of the scope of the Regulation.
Penalties for violators of the Regulation include sending a warning to the violator, imposing a fine, and the revocation of licenses.