Global Distribution Part II:
Middle East
Natalie Boyd, Partner, Dubai
8 July 2014
© Copyright 2014 by K&L Gates LLP. All rights reserved.
AGENDA
A. Differences in approach between Middle East
jurisdictions
B. Impact of 2014 UAE Investment Management
Regulation on non-UAE managers
C. Overview of proposed introduction of Qualified
Investor Exempt Funds in the DIFC
D. Overview of proposed amendments to Investment
Funds Regulation in Saudi Arabia
E. Q&A
A. Differences in approach between Middle East
jurisdictions
 Key jurisdictions:
 Gulf Co-operation Council Countries (UAE, Saudi Arabia, Qatar, Kuwait, Bahrain,
Oman)

Surge in market volumes since inclusion of UAE/Qatar in MSCI
Emerging Markets Index (May 2014)

Common anomalies:
 Legal and regulatory regime is essentially the same across the region
 Having a corporate presence in one jurisdiction passports your activities across the
region
 Tolerated practice is accepted across the region hence no need for foreign
managers to be licensed
 Foreign managers are immune from sanction for unlicensed activities
A. Differences in approach between the Middle
East jurisdictions
 Tips to avoid regional regulatory issues:
 Conduct local due diligence before you market/distribute
 Confirm with the client the products that you are planning to distribute before you
market/distribute
 Take legal/regulatory advice with regard to each jurisdiction
 Train your sales and marketing teams
 Cross-border sanctions:
 MoUs between regional and international regulators for exchange of information on
securities offenders
 Reputational damage - list of securities offenders is available to clients and
competitors
 Firm will appear on the radar screen of multiple regulators even if breach occurred
in one jurisdiction
 Physical detainment/fines
B. Impact of 2014 UAE IM Regulation on nonUAE managers
 Overview of the Investment Management Regulation:
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Scope of application - geographical and product coverage
Requirement to establish/act through ESCA licensed UAE corporate presence
Specific criteria for establishing a licensed UAE corporate presence
Irrelevance of location of asset management outside UAE
Tolerated practice no longer applies to the marketing/conduct of IM activities
Exemption : government owned entities
Informal exemption for reverse solicitation
B. Impact of 2014 UAE IM Regulation on nonUAE managers
 Reverse solicitation
 The concept of reverse solicitation
 The practicalities of reverse solicitation
 Follow up from initial meetings - emails/distribution of marketing
materials
 Reverse solicitation letters
 Marketing materials disclaimers/selling restrictions
 Safeguarding written confirmation of reverse solicitation
C. Overview of proposed introduction of
Qualified Investor Exempt Funds in the DIFC
 DIFC Funds Regime overhauled in 2010:
 DIFC fund managers permitted to manage funds outside the DIFC
 Foreign fund managers permitted to establish and manage domestic funds without DIFC
presence
 Marketing of foreign funds in/from the DIFC expanded
 Fund manager application fees reduced from USD 40k to USD 10k
 Introduction of Exempt Funds regime - Professional Clients; lighter regulation; USD 50k
minimum subscription amount; 100 or less unitholders; private placement only
 Drivers behind proposes 2014 changes:
 Significant untapped tax/international treaty/land ownership (REITs) benefits for investors
 DIFC population grew by 14 % in 2013; still only 9 funds in the DIFC
 Large volumes of waiver applications; Exempt Funds proving too inflexible
 Failure to compete with established jurisdictions - Cayman, Luxembourg, Ireland - with more
types of funds
 DFSA conducted benchmarking exercise - results showed DIFC is too expensive; too highly
regulated; too inflexible
 DFSA set to narrow gap by introduction of Qualified Investor Exempt Fund (QIEF)
C. Overview of proposed introduction of
Qualified Investor Exempt funds in the DIFC
 Key parameters for proposed QIEF category
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50 or fewer Unitholders
Units offered only by way of private placement
Offered to Professional Clients only
Minimum subscription of at least USD 1,000,000
Fund manager must be DIFC licensed
 Additional benefits
 More flexibility in appointment of custodians
 Less stringent filing requirements
 Processing time reduced from 17 to 4-6 weeks
D. Overview of proposed amendments to
Investment Funds Regulation in Saudi Arabia
 Overview of current 2006 Investment Funds Regulation
 Strict regulation by the Capital Market Authority
 Foreign managers can only offer units on a PP basis and by a CMA authorised
person, unless offeree is exempt
 Public funds have to be approved by CMA and offered by authorised person
 Private placements restricted to 200 sophisticated investors on 12 month basis
 Drivers behind proposed amendments
 Restructuring of CMA - New CEO, Mohammed Bin Abdulmalik AlSheikh
 Drive to open up to foreign investment
 Additional regulation set for FDI in Saudi equities (90% retail market)
D. Overview of proposed amendments to
Investment Funds Regulation in Saudi Arabia
 Key parameters for amendments
 Definition of sophisticated investor expanded
 Restriction on offering to 200 investors during 12 month period removed
 Formal confirmation of marketing of foreign funds permitted on PP basis via
authorised person
 Potential pitfalls
 No removal of authorised person as distributor - increased operational
costs/competition since there are few CMA authorised distributors
 No specific private placement regime for sophisticated investors - increased
compliance burden/cost
Questions
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