The Authority’s Board of Directors’ Decision No. (1) of 2014
Concerning the Regulations on Investment Management
The Chairman of the Board of Directors of the Emirates Securities and Commodities
Authority,
Having considered Federal Law No (10) of 1980 concerning the Central Bank, Monetary System
and Regulation of Banking Profession, as amended;
Federal Law No (8) of 1984 concerning Commercial Companies, as amended;
Federal Law No (5) of 1985 concerning the Issuance of the Civil Transactions Law of the UAE,
as amended;
Federal Law No (4) of 2000 concerning the Emirates Securities and Commodities Authority and
Market, as amended;
Federal Decree No (32) of 2013 concerning the Formation of the UAE Cabinet;
Council of Ministers’ Resolution No (13) of 2000 on the Functioning System of the Securities
and Commodities Authority, as amended;
Council of Ministers’ Resolution No (108/7 and /5) of 2010 on the Reformation of the Board of
Directors of the Emirates Securities and Commodities Authority;
Resolution of the Central Bank No (164/8/94) on the Regulations of Financial Investment
Companies, and Investment, Financial and Banking Consulting Companies and Institutions, as
amended;
Authority's Board Decision No (1) of 2000 concerning the Regulations as to Brokers, as
amended;
Authority's Board Decision No (3) of 2000 concerning the Regulations as to Disclosure and
Transparency, as amended;
Authority's Board Decision No (37) of 2012 concerning the Regulations on Mutual Funds; and
Following the approval of the Board of Directors at its Twenty-First Meeting of the Fourth
Session held on 26/12/2013,
Has decided:
Article (1)
Definitions
The following words and phrases shall have the meanings given to them below, unless the
context requires otherwise:
UAE / State:
United Arab Emirates.
Law:
Federal Law No. 4 of 2000 concerning the Emirates Securities and
Commodities Authority and Market and its amendments.
Central Bank:
Central Bank of the United Arab Emirates.
Authority:
The Emirates Securities and Commodities Authority.
Board:
The Board of Directors of the Authority.
Mutual Fund:
A financial vehicle engaged in the activity of receiving Investors'
money for the purpose of investment against the issue of fund units of
equal value and rights.
Securities Portfolio:
Securities owned by the investor and managed by the Investment
Manager on behalf of the investor by virtue of an agreement signed
therewith.
Investment
Management:
Management of Securities Portfolios for the account of third parties or
the management of Mutual Funds in accordance with investment
objectives and policy defined in the investment management agreement
signed between the Investment Manager and its clients including
individuals, establishments or Mutual Funds.
Investment
Manager:
Legal person licensed to practice the activity of Investment
Management in accordance with the provisions of this Decision.
Investment
Committee:
A competent committee, at the Investment Manager, to plan for the
implementation of an investment policy to manage the investment and
follow up on and monitor actual performance.
Chapter One: Licensing
Article (2)
1.
The investment management activity may not be carried out in the State unless after
obtaining a license from the Authority in accordance with the provisions of these
Regulations.
2.
With the exception of promotion of financial portfolios owned by federal and local
government entities, Investment Management activity may not be promoted within the
State except for persons authorized by the Authority to engage in such activity.
Article (3)
Licensing Conditions
First: To obtain a license to carry out an Investment Management activity the following
conditions must be satisfied:
1. The applicant requesting a license must be a legal person in one of the following forms:
a. a joint stock company incorporated in the State in accordance with the provisions
of the Commercial Companies Law with the purpose of conducting an Investment
Management activity.
b. a joint stock company incorporated in the State in accordance with the provisions
of the Commercial Companies Law, one of its activities is to carry out an
Investment Management activity and it has license to operate in securities in
accordance with the controls issued by the Authority concerning the prevention of
conflicts between activities.
c. local bank or a branch of a foreign bank or investment company licensed by the
Central Bank, provided that the Central Bank does not object to the performance
of such activity in any of these cases.
d. branch of a company established in a financial free zone in the State or a branch
of a foreign company, provided that such branch is licensed to conduct such
activity in the relevant financial free zone or the parent state and that is governed
by a counterpart supervisory authority, and any other terms or conditions
determined by the Authority.
2. Its paid up capital must not be less than AED (5,000,000) five million, with the exception
of local banks and branches of foreign banks.
3. To submit an unconditional and unrestricted bank guarantee, payable upon request. Such
guarantee shall be issued in favour of the Authority by a bank operating in the State, with
a value of AED (1,000,000) one million, in order to guarantee its obligations to the
4.
5.
6.
7.
8.
9.
Authority or those obligations arising from the activity. The bank guarantee shall not be
cancelled without the approval of the Authority.
To pay the licensing fees as specified by the Authority.
To appoint technical and administrative staff required to perform the activity in
accordance with the measures issued by the Authority concerning the activity
requirements and the adoption of certain roles.
To provide an adequate premises and the required electronic and software programs and
technical systems for the performance of the activity, ensuring its ability to perform the
duties and tasks as provided by these Regulations.
To provide an internal control system which guarantees appropriate compliance with the
Law, regulations and resolutions issued in this regard, as well as internal regulations
applicable within financial markets, in a manner that guarantees that the activity is
conducted efficiently, honestly and fairly.
To provide an operational guide for risk management including the enumeration and
definition of specific current or potential risks that could face the company, how to
address them in case of occurrence, and how to monitor such risks and report them in
such a manner that enables the company to maintain the performance of its activity and
continue to comply with the provisions of these Regulations.
Any additional conditions or requirements determined by the Authority to serve the
public interest.
Second: An applicant requesting a license may submit an undertaking to fulfill, within a specific
period determined by the Authority, the conditions mentioned in paragraphs 5 to 8 of the First
item of this Article after the applicant obtains the approval for his request or otherwise the
Authority’s approval shall be considered void.
Third: The Investment Manager must meet, at all times, all the licensing conditions.
Article (4)
Technical and Administrative Staff
1. The technical and administrative staff of the Investment Manager must satisfy the
following conditions:
a. Be a natural person with full legal capacity.
b. Exhibit good conduct and have a good reputation and cannot have been
previously imprisoned for a crime involving dishonesty or a breach of trust unless
rehabilitated.
c. Must be capable of paying his commercial debts regardless of whether or not a
declaration of bankruptcy was made against him. Additionally that he was not
previously declared bankrupt unless exonerated.
2. It is prohibited to engage in two registered functions simultaneously.
3. Any of the Investment Manager's approved employees may transfer to work with another
Investment Manager following notice to the Authority.
Article (5)
Application for License
1. The license application to carry out an Investment Management activity must be
submitted to the Authority on the form prescribed for this purpose together with
supporting information, data and documents, in particular:
a. The legal form of the applicant together with a report showing the names of
applicant’s board of directors and executive management.
b. Investment management agreement form.
c. Statement of any obligations or legal or judicial responsibilities relating to the
applicant.
d. Statement showing the names of the manager, internal controller, and the persons
responsible for the provision of Investment Management activity, together with a
job description for each of them.
e. Statement showing the used technical systems and the suggested work procedures
for the provision of the Investment Management activity.
f. A receipt indicating payment of the prescribed license fees of AED 50,000.
2. The Authority may request any additional clarifications, information or documents.
3. The Authority shall issue a decision to approve or reject an application within 30 days
from the date a completed application was submitted; should the Authority fail to issue a
decision within such period, the application shall be considered rejected. A new
application may not be submitted before six months following the rejection of the first
application.
4. The Authority may provide a conditional approval subject to the conditions and
restrictions deemed convenient to preserve the public interest.
Article (6)
Licensing Duration and Renewal
1. The term of the license shall be one year, expiring at the end of December each year.
However the term of the first license starts on the date such license is granted until the
end of December of the same year; the fee due on such license shall be charged as a
proportion of the fees due for the license period for the year, with any part of a month
calculated as a full month.
2. The license shall be renewed by an application submitted to the Authority one month
prior the end of the license period at least, after ensuring that the Investment Manager is
still compliant with the provisions of these Regulations and that the annual license
renewal fees of AED 25,000 are paid. The Authority's CEO may suspend the Investment
Manager from conducting its business if a completed application to renew its license has
not been submitted within the specified period.
Article (7)
Investment Manager's Branch Offices
The Investment Manager may establish branch offices inside the UAE subject to obtaining a
prior approval from the Authority in accordance with the conditions and terms issued in this
regard.
Article (8)
License Cancellation upon the Investment Manager's Request
The Investment Manager wishing to completely renounce the practice of Investment
Management activity shall submit a request to the Authority for that matter, and comply with its
obligations to the Authority and clients as per the procedures defined by the Authority. The
decision to cancel the license of an Investment Manager shall be issued by the Authority and it
shall be published in two daily newspapers issued in the State with at least one in the Arabic
Language at the Investment Manager’s expense.
Chapter Two: Investment Manager's Obligations
Investment Manager's Internal Organization Requirements
Article (9)
First: The Investment Manager must make all the necessary administrative and technical
procedures to engage in the licensed activity in accordance with the provisions herein, in
particular:
1. Form an Investment Committee to be responsible for the planning of the investment
policy implementation in order to manage investment and follow up and monitor actual
performance as well as carrying out periodic reviews, at least twice a year, of the terms
and procedures necessary for the practice of the activity which are applicable at the
Investment Manager and to ensure the existence of appropriate operational methods to
2.
3.
4.
5.
6.
7.
8.
guarantee that the practice of the activity has been carried out in accordance with the
provisions herein.
Review the internal control system and the operational guide for risk management and
update it regularly in accordance with the nature of the company’s operations.
Develop internal regulations including sound administrative and accounting procedures
in addition to efficient arrangements to control and preserve systems specific to the
processing of information and full compliance with applicable regulations in the State
concerning money laundering procedures and terrorism funding.
Develop code of conduct for its employees and supervise them, and monitor their
personal dealings in securities to ensure compliance with the provisions of the Law,
regulations and decisions issued by the Authority, in particular those relating to the
integrity, honesty and conflict of interests.
Develop necessary rules to regulate employees' purchase and sale of Fund Units issued
by Funds under the management thereof.
Adopt a mechanism to document all the information, data, documents and records
specific and relating to the practice of the activity, and to maintain them for a period of
not less than 10 years, in addition to keeping backup copies of such data during the same
period.
Enable the internal controller to perform his duties, particularly the following:
a. Ensure the compliance of the Investment Manager and employees thereof with the
provisions of the Law, regulations and resolutions issued in this regard as well as
policies, rules, procedures and internal regulations.
b. Ensure that there is no conflict of interests between the Investment Manager and
its clients, or among clients.
c. Ensure complete separation between the management of securities portfolio and
Mutual Funds management in the event that the two are combined, in accordance
with the terms determined by the Authority.
d. Notify the Authority of any violation of the Law, regulations, resolutions or terms
issued in this regard.
The internal controller may only be dismissed by a resolution of the board of directors of
the company provided that the Authority and the internal controller are notified in writing
at least 30 days prior to his dismissal clarifying the reasons and justifications thereto.
Second: The internal controller shall submit a report on the Investment Manager's activities to
the Investment Committee every three months and provide the Authority with a copy thereof.
Third: The Investment Committee shall ensure that the performance of the internal controller’s
assignment is duly facilitated, as it shall review all the records kept with the Investment Manager
and monitor the employees' dealings in securities.
Article (10)
Investment Manager's Obligations concerning the Investment under its Management
In addition to any other obligations stated in the Regulations on Mutual Funds or in the laws and
regulations of the Authority, the Investment Manager shall comply, in terms of the investment
under its management within the Securities Portfolio or Mutual Fund, with the following:
1. To enter into an investment management agreement with every client for whom the
Investment Manager manages investments, where it shall state particularly all the data
and information requested below or any other data or information requested by the
Authority:
a. definition of the Investment Management activity as per the provisions stated
herein.
b. all the data related to its client and his authorized representatives in addition to the
relevant contact details.
c. a detailed statement of the investment policy relating to clients and all details
related to it as well as the conditions under which the investment is managed; a
statement clarifying the risks linked to the investment and clearly defining the
decision making authority for investment specific matters, provided that such
statements do not violate any of the regulations issued by the Authority.
d. define the mechanism and procedures to be adopted in order to implement the
"Know your client" principle.
e. types and details of reports to be provided to clients.
f. detailed statement of all the rights and obligations relevant to the Investment
Manager and the clients thereof.
g. fees and charges payable by clients against the provision of investment
management service thereto.
h. define the proposed mechanism to solve disputes that may arise between the
Investment Manager and its clients.
i. conditions for the termination of the agreement.
2. Seek to execute the investment objectives of clients.
3. Comply with the principles of honesty and integrity when practicing the activity, seek to
fulfill clients' interests in the best possible way, refrain from promoting self or others'
interests ahead of the clients', and abstain from any discrimination among clients, treat
them equally and adopt the relevant rules and regulations to ensure compliance with the
same.
4. Ensure no conflict of interest with clients for whom the Investment Manager is managing
funds or among clients themselves, and immediately notify the concerned clients in
writing whenever an existing or potential conflict of interest arises and inform the
Authority of those interests relating to the Mutual Fund.
5. Disclose to the client all the data and information relating to the evaluation of the
investment thereof provided that the same is done in an easy and clear manner in
accordance with the nature of the client’s business.
6. Set appropriate procedures aimed at ensuring full separation between the Investment
Manager's own accounts and its clients' accounts, as well as the separation among clients'
accounts.
7. Receive no funds or assets directly or indirectly from clients provided that managed
assets are deposited in an account with a depository licensed by the Authority or
depository licensed by another jurisdiction if the clients' investments are abroad.
8. Protect the funds and assets of clients and refrain from exploiting them for purposes other
than clients’ interest, or in a manner that contradicts their investment objectives.
9. Provide a level of liquidity in accordance with the nature of the investment managed in
order to face risks and obligations related thereto.
10. Preserve the confidentiality of the data and information pertaining to clients' investments
and refrain from disclosing such material to other than competent authorities or upon
written approval by the relevant clients.
11. Refrain from using investment data specific to clients in order to achieve benefits or
interests that do not serve the client concerned.
12. Maintain the records necessary to practice the activity and organize all data specific to
clients' accounts by assets.
13. Provide the client with a monthly report unless the agreement concluded between them
stipulates a shorter period, while ensuring that the report includes the following data as a
minimum:
a. Statement of the investment portfolio components.
b. Volume of deals made in the portfolio account.
c. Investment portfolio evaluation.
d. Incoming and outgoing amounts to/from the portfolio accounts.
e. Statement of changes in the portfolio.
f. Salaries payable by the client to the Investment Manager.
g. Any critical event that may affect the risks expected by the Investment Manager.
14. Make all possible efforts to review the financial position of the companies and assets in
which the Investment Manager invests the client's funds under its management, and
ensure that investments are diversified in order to minimize investment risks in line with
the investment policy, and that the Investment Manager does not use such funds to affect
securities prices in the market.
15. Ensure the best implementation for the client, and comply with sale and purchase
operations schedule and the distribution on brokerage firms in the market in which the
Investment Manager operates, provided that it refrains from being biased to some
brokerage companies in such a manner that would make the Investment Manager achieve
private gains or harm the client's rights, and operations may not be aimed at increasing
the commissions, fees or expenses of third parties.
Article (11)
Investment Manager's Obligations before the Authority
In addition to any other obligations provided in the Mutual Funds Regulations concerning
Mutual Funds or the Law and regulations, the Investment Manager commits to the following
before the Authority:
1. Preserve the necessary solvency to practice its activity continuously to such an extent
that allows it to meet its obligations as per the standards issued by the Authority in this
regard.
2. Provide the Authority with the following reports:
a. Periodic financial reports (quarterly and half-yearly) reviewed by an external
auditor of the company within 45 days from the end of the determined period,
signed by the chairman of the board or by an authorized signatory on his behalf if
the Investment Manager is a company only established to practice Investment
Management.
b. Annual financial statements audited by an external auditor of the company within
90 days from the end of the financial year, signed by the chairman of the board or
by an authorized signatory on his behalf if the Investment Manager is a company
only established to practice Investment Management.
c. Periodic reports or reports upon request for the separation of accounts.
d. Periodic reports about the company’s activities including the volume of funds
managed with the knowledge of the company as well as the number, names and
volume of investments and company clients' transactions in addition to money
turnover and the statement of the distribution of funds managed on different
investment tools and markets.
e. Periodic reports on the distribution of the company transactions with service
providers dealt with including brokerage firms, banks and the parties offering the
service of depository for the assets managed with the knowledge of the company.
f. Any other financial statements and reports requested by the Authority.
3. Obtain the Authority's prior approval before taking any of the following actions:
a. Add, delete or amend an activity on the trade license.
b. Amend the memorandum or articles of association of the Company.
c. Increase or decrease the share capital of the company.
d. Conclude merger or acquisition operations.
e. Change the address of headquarter or branch offices of the company.
4.
5.
6.
7.
f. Change shareholders or adjust their shareholding in the company, with the
exception of public joint stock companies.
g. Launch any advertising campaigns to promote its services.
Notify the Authority with the following immediately:
a. Any substantial changes or developments in the Investment Manager's activity, or
any failure that would affect its financial position.
b. The termination of services of any person responsible for a key role in the
management of the portfolio, in particular the portfolio or fund manager.
c. Any amendments to the information or data submitted in the application for
license.
d. Any violations by its employees to the laws, regulations, rules or resolutions
applicable within the Authority.
Maintain at all times records, documents, accounts and financial statements showing its
financial position as well as all its clients and agreements of dealings.
Comply with all the rules, procedures and regulatory requirements approved by the
Authority concerning internal audit and internal auditors' tasks.
Conduct the activity licensed thereto carefully and in a prudent way in accordance with
the provisions of the Law and the regulations issued in implementation thereof as well as
with the conditions and controls by virtue of which the license was issued, in compliance
with the business norms in this matter as well as integrity, justice and equality principles,
and ensure clients' interests are met.
Article (12)
Investment Manager's Tasks Delegation
The Investment Manager may delegate some of its duties to another licensed Investment
Manager in accordance with the following controls:
1. Receive the prior written approval of the client on the Investment Manager's right to
delegate some of its duties.
2. Notify the client of the following:
a. Name of authorized Investment Manager, reasons of delegations and details
related thereto.
b. Termination of the delegation by the Investment Manager in the event that it is
not in the best interest of the client, and alternate procedures to be taken.
c. Any conflict of interest arises between the client and any of the delegated
Investment Manager's clients.
3. The continuation of the delegating Investment Manager's responsibility before the
Authority and the client as regards to its obligations relating to the performance of its
duties in accordance with the provisions of these Regulations.
Chapter 3: Control, Inspection and Sanctions
Control and Inspection
Article (13)
The Authority may, without any prior notice, conduct periodic inspections over a licensed
Investment Manager in order to ensure its compliance with the Authority’s laws and regulations,
and the Authority may investigate any violations that appear as a result of the inspection or in
claims received by the Authority.
The Authority may for this purpose request all the necessary information and documents from
the Investment Managers, their employees or clients.
Article (14)
Practice of Activity outside the State
The Investment Manager may practice its activity outside the State if permitted to do so by the
laws and competent authorities outside the State, provided that the same entails no liability
whatsoever on the Authority in accordance with the following conditions:
1. Receive a non-objection letter from the Authority on the same.
2. Ensure no conflict of interest arises between the Investment Manager and its clients or
among clients inside or outside the UAE.
Article (15)
Violations and Sanctions
First: In the event that the Investment Manager breaches the provisions of the Law, regulations
or controls issued in this regard, the Authority may impose one of the following sanctions:
1. A warning to the Investment Manager and an order to correct the violation within the
period specified by the Authority.
2. A fine of no more than the maximum limit provided for in the Law and the regulations
issued in this regard.
3. Suspend the Investment Management from practicing the activity for a period not
exceeding one year.
Second: The Authority may cancel the license of an Investment Manager in any of the following
events:
1. Loss of any conditions of the licensing conditions stated in these Regulations.
2.
3.
4.
5.
Serious breach of any of the obligations or duties provided for in these Regulations.
Failure to pay the annual license renewal fee or the imposed fines.
The passing of a final court judgment declaring the licensed company bankrupt.
The winding up or liquidation of the licensed company.
The decision to cancel the license of an Investment Manager shall be published in two daily
newspapers issued in the State with at least one in the Arabic Language at the Investment
Manager’s expense.
Third: In the event that the Investment Manager's approved employees breach the Law,
Regulations, resolutions or controls issued in this regard, The Authority may impose one of the
following sanctions:
1. A warning.
2. A suspension for a period of no more than two months.
3. Cancel the approval.
Article (16)
Conformation
Companies and entities practicing Management Investment activity before the issuance of this
Decision shall conform in accordance with the provisions thereof within a period not exceeding
one year from the date of its issuance in the Official Gazette.
Article (17)
Effectiveness
This Decision shall be published in the Official Gazette and shall become effective on the day
following the date of its publication.
Engineer / Sultan Bin Saeed Al Mansouri
Chairman of the Board of Directors
Issued in Abu Dhabi on 13/1/2014