This episode is also available as a blog post: https://10leaves.ae/publications/difc/setting-up-a-regulated-fintech-license-in-the-difc

Firms interested in carrying out fintech activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises fintech activities based on the type of activity being carried out, and the minimum base capital required.

Consequently, fintech activities can form part of Category 3 and Category 4 licenses, which various related activities such as advising and arranging investments, portfolio management (discretionary and non-discretionary), money service businesses and digital/robo advisory activities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-aisp-and-pisp-licensing-in-the-difc

Money Services Businesses cover a wide range of money-related activities, starting from payment processing companies to investment services, from individuals and startups to major global enterprises. They can include providing account information services, payment initiation services or analytics on client and corporate accounts. Other core money services can include issuing payment instruments, providing money transmission, payment processor services, operating payment accounts and issuing stored value. Transferwise, Nymcard, Paypal and Revolut are  examples of money service businesses.

Firms interested in carrying out money services business activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Arranging and Advising on Money Services :

These include firms that provide open banking services, such as Account Information Services, Payment Initiation Services and other advising and arranging services.

Account Information Services – These firms are authorised to retrieve account information data from banking and other financial institutions such as lenders, mortgage providers, and credit card issuers. Such firms cater to both individuals, and institutions (mostly SMEs). Account Information Services come under Open Banking activities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/cost-of-setting-up-a-regulated-firm-in-the-difc

DIFC is one of the world’s top ten onshore financial centers and offers a secure and efficient platform for businesses and financial institutions to reach into and out of the emerging markets of the region. The quality and independence of DIFC’s regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in the MENASA region.

DIFC fills the time-zone gap for a global financial centre between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East.

Why setup a financial services firm in the DIFC?

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

There exist opportunities for startups as well. The recent focus on fintech led to the DIFC Fintech Hive initiative, that serves as an accelerator for fintech firms to test their products and pitch it to prospective investors. Sarwa is one such success story.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/advantages-of-setting-up-a-business-in-the-difc

The Dubai International Financial Centre, or DIFC, is a leading financial hub in the region for business, fintech, and lifestyle. Setup in 2004, the DIFC has grown to be one of the top 10 onshore financial centres in the world. It brought in a paradigm change in the region, by adopting a Common Law framework, with an independent regulator (DFSA) and an independent English language Common Law judiciary – DIFC Courts.

Since then, the DIFC District has matured into more than just a place to work – it is now a lifestyle destination, with retail outlets, cafes and restaurants, art galleries, residential apartments, public green areas and hotels dotting the landscape.

Why setup in the DIFC?

The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-as-a-destination-for-indian-fund-managers-difc-company-formation

India and the UAE have shared warm relations going back centuries. The recent high-level visits of UAE and Indian leaders demonstrate the proactive nature of decision-making between the two countries. Another reason for the greater depth in relations is the rigorous structure of various committees that have been set up following the high-level visits.

In addition, there are enormous possibilities from the $75-billion fund announced  in 2015 by Indian Prime Minister Shri. Narendra Modi and His Highness Shaikh Mohammad Bin Zayed.

With a 3.2-million-strong population, the Indian expatiate population in the UAE is the largest in the world, and is growing on a year-on-year basis. Over 1,000 flights operate between the two countries, and recent years have shown a significant increase in the number of tourists traveling from India to the UAE.

In 1982, foreign trade figures between the UAE and India were at around 180 million. In 2016-17, these numbers crossed $52 billion, thus making India the second largest trading partner of UAE, and UAE became India’s third largest trading partner.

At US$ 6.5 billion, India is the third-largest source of FDI in the UAE. Indians are the largest foreign investors in Dubai real estate, amounting to over US$ 5.7 billion, or 13% of the total.

The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted. The DIFC is the preferred gateway for Indian investors to access the Middle East, Africa and South Asia (MEASA) markets on one side and Europe, Asia and the Americas on the other – a region worth an estimated USD 7.4 trillion in annual trade.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-licensing-process-for-authorised-firms

Firms interested in engaging in financial services from the DIFC are required to submit applications to the independent regulator - Dubai Financial Services Authority, or DFSA.

The DFSA offers a wide range of financial service activities, from investment advisory to asset management, brokerage and wholesale banking. For the purposes of authorisation and supervision,the DFSA categorises applicants based on the activities applied for. There are five main categories of Authorised Firms in the DIFC.

Read more about the DIFC Licensing categories here:

https://10leaves.ae/publications/difc/difc-licensing-categories

This episode is also available as a blog post: https://10leaves.ae/publications/difc/investment-funds-in-the-difc

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of DIFC Public Fund, DIFC Exempt Fund and DIFC Qualified Investor Fund. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/service-providers-for-investment-funds-in-the-difc

A fund administrator carries out calculations of Net Asset Values (NAV) of the fund units, manages the investor onboarding process, including subscriptions & redemptions, and does all necessary due diligence on the investors. A fund administrator also prepares financials reports for the fund. In case of open-ended funds, a fund administrator also carries out trade and account processing, confirmation of trades & reconciliations, cash management, shareholder register management, investor document retention and overall investor communication on all reporting and corporate actions.

A Qualified Investor Fund in the DIFC does not have to appoint a fund administrator for closed-ended funds this function can be handled in-house. However, in most cases, a fund administrator brings to the table a lot of benefits that can be valuable especially to smaller funds who cannot carry out this function effectively in-house.

Legal Counsel:

It is mandatory to appoint legal counsel for an investment fund. A typical fund setup involves at the very least, three main documents – a detailed private placement memorandum (PPM), an investment management agreement between the fund manager and the fund, and a fund constitution that serves as the Articles of Association of the fund, and helps govern the internal matters of the fund. Other relevant documents include the information memorandum, which is usually a subset of the PPM, and subscription agreements that can be quite detailed in some cases.

Legal counsel help draft this extensive set of documentation, and review fund marketing material. They also play a role in investor dispute resolution & litigation.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/required-documents-for-a-fund-in-the-difc

Starting an investment fund not only requires deep understanding what investment strategies, but also of the various structures available and the documents required for these structures.  Broadly speaking, there are two main categories of hedge fund structures in the DIFC – partnerships and investment companies. Let’s take a closer look at the documents required to setup partnerships and investment company-related structures in the DIFC.

For DIFC-investment companies:

1. Private Placement Memorandum.

2. Subscription Agreement (for investors).

3. Investment Management Agreement.

4. Fund Constitution.

For DIFC Partnerships:

1. Private Placement Memorandum.

2. Limited Partnership Agreeement.

3. Subscription Agreement (for investors).

4. Investment Management Agreement.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-open-ended-and-closed-ended-investment-funds

Funds that are structured as companies, have two main options in the DIFC.

Open-ended Investment Company (OEIC)

Closed-ended Investment Company (CEIC)

There are many considerations that go into choosing a legal structure for a fund. Some of them being – the jurisdiction of choice, the fee structure, tax considerations and the like. The choice between open-ended and closed-ended vehicles for DIFC investment funds however, depends a lot on the investment objective and fund strategy.

The basic difference between an open-ended and a close-ended fund is the option of liquidity, i.e. whether investors (or unit holders) are allowed redemptions. Open-ended funds allow periodic redemptions on certain days, depending on how frequently the Net Asset Value (NAV) of the fund is calculated. For heavily traded funds, this can be daily as well. Most private funds however, have longer NAV periods, ranging from monthly, to quarterly. Closed-ended DIFC funds however, have no such provisions. They are essentially illiquid, due to the nature of the underlying investments. Such funds are usually property or venture capital funds, that require a longer commitment to the underlining investment objectives. These funds have to be closed-ended, since it would not be practical to fulfill periodic redemption requests by selling off the underlying assets. Some closed-ended funds do have an exit option – solely at the discretion of the directors, and at a steep exit fee.