28 Feb 2022

Establishment of a DFSA Regulated Entity

Authored by: Bilal Abu Snaineh and Sundus Khan

In Brief:

  1. In order to conduct financial services in or from the Dubai International Financial Centre (“DIFC”) entities need to be appropriately licensed by the DIFC’s independent regulator, the Dubai Financial Services Authority (“DFSA”). The DFSA’s license will note the type of financial services that may be entitled to be carried out by the relevant entity.
  1. Introductory meetings with the DFSA and DIFC are an important starting point in respect of any application to obtain a DFSA licence as the applicant will discuss with the DFSA officials the proposed nature of the financial services to be provided and the manner by which it intends to satisfy applicable DFSA requirements.
  1. As part of the incorporation process, the DFSA usually requires a Regulatory Business Plan which is a key document addressing a range of relevant regulatory matters in order for the DFSA to determine whether the applicant is “fit and proper” in accordance with applicable DFSA regulations.

DIFC and DFSA

The Dubai International Financial Centre (“DIFC”) is a financial free zone established in Dubai pursuant to Federal Decree No. 35 of 2004, following an amendment to the UAE constitution, and is administered by the Government of Dubai.

As an independent jurisdiction within the UAE, the DIFC is empowered to create, and has created, its own legal and regulatory framework for all civil and commercial matters (which are exempt from the UAE Federal civil and commercial laws), including a court system and arbitral bodies. The DIFC legal and regulatory system is specifically designed to provide an adequate regulatory regime for the creation and operation of a global financial centre.

The DIFC is a well regulated hub for investment firms, and other financial institutions that wish to establish in the region to provide financial services.  

The DIFC’s independent regulator, the DFSA regulates all financial services rendered from within the financial free zone. Any firm providing a financial service from the DIFC is required to be regulated by the DFSA.

DFSA Regulated Firms

Possible financial services and activities that DFSA licensed firms may provide and carry out from the DIFC include, but are not limited to:

  1. providing money services;
  1. accepting deposits and providing credit;
  1. dealing in investments;
  1. assets management;
  1. advising on financial products;
  1. managing collective investment funds; and
  1. insurance management.

The type of financial service a firm intends to provide will determine the category of licence required to be issued by DFSA, which will in turn also determine the amount of capital requirements. The DFSA’s licenses typically range from Category 1 to Category 4, with the capital requirements ranging from USD 10,000 to USD 10 million. The base capital requirements to conduct “Advising & Arranging” activities under category 4, for example, are USD 10,000 while the base capital requirements for category 1 and category 5 to conduct “Banking” activities are USD 10 million.

Obtaining a DFSA licence

As mentioned above, the first step in obtaining a DFSA licence requires the applicant’s authorised representatives to meet with the DIFC’s Business Development team and the DFSA’s Authorisation Enquiries team to discuss the proposed financial services to be provided by the applicant.

Following these meetings, the applicant is required to then proceed to submit a completed application to the DFSA, which includes the Regulatory Business Plan, being the key document, and other supporting documents, as required by the DFSA.

The main points to be addressed in the Regulatory Business Plan include the following:

  • business model and business strategy;
  • corporate governance;
  • senior management;
  • ownership and group structure;
  • financial and operational resources; and
  • conduct of business and money laundering risks.

The DFSA carries out a review of the application and likely to engage into a further discussion with the applicant, which may involve interviews with the nominated authorised individuals holding key positions, in the authorized firm (e.g. Senior Executive Officer (“SEO”).

Once a completed application is submitted to the DFSA, the DFSA typically takes approximately up to four (4) months to complete a formal review of the submitted application, and issue an in-principle approval, which may include certain conditions to be satisfied by the applicant before the issuance of the final DFSA licence.

The timeline set out above is approximate and may vary depending on the complexity of the proposed nature of the activities and the manner by which it intends to carry out such activities. The DFSA has discretion to request any further information or documentation for the purpose of its assessment.

The DFSA fees to be paid as part of the incorporation process typically range from USD 2,000 to USD 75,000 depending on the type of licence/category and financial service that has been applied for.

Once the in-principle approval is issued, the applicant will be required to register an appropriate entity with the DIFC Registrar of Companies. The entity will be required to lease appropriate office space and open a corporate bank account of the authorised firm to deposit the required share capital.

Conclusion/Recommendation: Hadef & Partners Corporate team has extensive experience advising applicants on the DFSA regulatory regime and applying to the DFSA and DIFC for the appropriate licences.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.