Regional regulatory update
Divya Abrol Gambhir, Head of Financial Regulation & Securities, Banking & Finance and Margaret Elder, Associate, Banking & Finance, both at Al Tamimi & Company provides an aerial view of the regulatory landscape in the region.
The United Arab Emirates
The UAE has recently seen as number of new regulations issued by the UAE Central Bank and the UAE Securities and Commodities Authority (SCA). We have highlighted a few of the most significant below.
The Regulatory Framework for Stored Values and Electronic Payment Systems Regulation (EPS Regulation) issued by the UAE Central Bank and is effective as of 1 January 2017. The EPS Regulation has been long awaited by the banking industry and marks the formal issuance of regulations by the UAE Central Bank that recognises, governs and licences the fast growing business of digital payment services. The EPS Regulation enables the issuance of Digital Money and Payment Instruments involving the United Arab Emirates Dirham (AED).
The EPS Regulation introduces four different categories of licences for a payment service provider (PSP). They are: (a) Retail PSP; (b) Micropayment PSP; (c) Government PSP; and (d) Non-issuing PSP.
While commercial banks licenced by the UAE Central Bank are exempt from applying for a PSP licence, they are required to apply for authorisation to the UAE Central Bank at least three months prior to providing services covered by the EPS Regulation.
The EPS Regulation allows a transition period of one year whereby any PSP that has commenced the provision of digital payment services in the UAE prior to this EPS Regulation shall take all measures to comply with it within such one year from the date of its issuance.
The SCA has issued a new regulation, Board Decision No. (3/R.M) of 2017 regarding the Promotion and Introduction Regulations (Promotion Regulations). The Promotion Regulations were published in the Federal Gazette on 31 January 2017 and came into force on 1 February 2017.
Since the issuance of the new SCA fund regulations last year, it was evident that the Promotion Regulations were necessary to effectively conduct any marketing activity relating to foreign funds. The Promotion Regulations requires the licencing or approval of the following financial activities: (i) Promotion of financial products; and (ii) Introduction services. To carry out Promotion activities requires a licence from SCA and to carry out Introduction services requires an approval from SCA.
There are various situations that are exempt from the application of the Promotion Regulations. Some of these exemptions include: the promotion of UAE listed products, a promotion to a qualified investor (except the high net worth individuals/solvent natural person), the promotion of products issued by the Government or its subsidiaries, reverse solicitation initiated by the proposed investor, introduction and promotion between the parent and related entities, the introduction of the financial consultant or legal consultant if it is part of the consultancy and commodity brokers.
The Promotion Regulations provide for various requirements in order to obtain a promotion activity licence. However to be an introducer, a person would need to seek the approval of the SCA (it is not a licence application). Promoters are obligated to notify SCA at the time of the promotion of any financial product; however SCA prior approval is necessary for promotion of investment funds. The Promotion Regulations also lists further obligations when conducting any promotion activity.
The promotion of foreign funds (both public and private placements) is now mainly captured under the Promotion Regulations. The promotion of foreign funds under private placement is restricted to qualified investors only.
In addition the SCA has also recently issued various new regulations which include: substantial amendments to the anti-money laundering and terrorist financing regime; licencing requirements for entities providing fund administration services; and specifications and controls in relation to real estate, venture capital and private equity funds.
In Qatar Law No. 13 of 2016 concerning the privacy and protection of personal data (Data Protection Law) was recently approved and grants certain rights to individuals in relation to the collection and processing of their personal data.
The Data Protection Law places a heavy burden on the data controllers and processors to ensure that the personal data is handled with care and is protected from any loss or unauthorised disclosure. Added protection is afforded to personal data of a private nature. Such information can only be processed after obtaining permission of the relevant department of the Ministry of Transport and Communications (MTC). The Data Protection Law also prohibits direct marketing through electronic communication to individuals without obtaining their advance consent. However, certain exemptions do exist under the Data Protection Law.
The Data Protection Law may cause some practical difficulties for the banks, either due to lack of clarity or the subjective nature of the law. For example: during the KYC process, certain personal data of a private nature may be gathered by the banks. However, this information may only be processed after obtaining permission of the MTC. The Data Protection Law lacks clarity in this regard. Moreover, banks usually outsource certain non-core functions to service providers which results in cost reduction, improvement of services, or saving time for the bank’s main services. However, it seems that the Data Protection Law places an additional obligation on the banks to ensure that the data obtained meets the lawful purposes and is processed in accordance with the law.
The Investment Limited Partnerships (ILP) Law; the Trusts Law; and the Protected Cell Companies (PCC) Law have been recently implemented in Bahrain with the principal aim of advancing the financial services sector and encouraging investors to choose Bahrain as their destination of choice when doing business in the Middle East.
Limited Partnerships are the most popular form of closed ended funds internationally and is understood by international fund investors. By introducing the ILP Law, Bahrain catches up with neighbouring GCC jurisdictions namely Dubai, Abu Dhabi and Qatar.
The Trusts Law introduces a number of substantive and procedural changes to the previous trust law. One such change is the formal recognition, for the first time in Bahrain, of trusts established under and governed by the law of a foreign jurisdiction.
A PCC is a single legal entity made up of a core and one or more parts called ‘cells’. The cells do not have their own legal personality but do offer ring-fencing of assets and liabilities that are completely segregated from any other cell or the PCC. Advantages of PCCs include cost savings and efficiency of managing certain risks.
We hope that these changes enhance Bahrain’s competitiveness in the financial services sector by making it easier to structure investment activities and boost Bahrain’s position as a financial hub.
Last year the Saudi Arabia Capital markets Authority (CMA) made extensive changes to the rules governing the regulation and distribution of investment funds. The new Investment Funds Regulations (New IFRs), amended the Investment Funds Regulations issued in 2006 (Former IFRs). The New IFSRs have clarified the regulations in relation to foreign funds.
In practise, the promotion and distribution of foreign funds pursuant to the Former IFRs relied upon an uneasy combination of the express provisions of the regulations and the practises that were generally tolerated by the CMA. For example, it was not previously clear how the rules relating to offering securities in a foreign fund would be applied as the offering rules only related to public offers of KSA funds.
The New IFRs seek to simplify matters through a consolidation and clarification of all relevant rules. In particular the foreign fund rules are now set out in Part 6 of the New IFRs.
Pursuant to Article 93 of the New IFRs, a foreign fund (i.e., an investment fund established in any jurisdiction other than KSA) may be offered within KSA only if: 1) the offer is made through a distributor authorised by the CMA to conduct ‘dealing as agent activities; 2) the offer is made solely by way of private placement; 3) the fund manager of the foreign fund is authorised in a jurisdiction that has regulatory standards and requirements that are at least equivalent to those of the CMA.