UAE delays final draft on fund regulations

DUBAI: The United Arab Emirates has postponed a final draft ruling on new guidelines to regulate its nascent asset management industry after concerns were raised by industry players, two sources familiar with the matter said on Sunday.

UAE market regulator Securities and Commodities Authority (SCA) issued an initial draft for regulating investment funds earlier in the year and a final circular was expected by mid-July after consultations with market participants.

But the regulator has now delayed the process with one industry source saying it may get pushed to next year. Another asset management source said the final draft has been postponed to September.

The regulations are seen as a key step for investor protection and boosting market confidence but market players have been concerned that some of the proposals lacked clarity and held talks with the regulator to address concerns.

Firms are wary of some proposals, including one asking banks to provide for risks arising out of marketing third party funds to retail investors, the sources said.

"This (proposal) puts a lot of pressure on us to monitor the products and is shifting the onus upon banks," one of the sources said.

The SCA was not immediately available for comment.

The rules require companies planning to set up a local investment fund to establish it as a joint stock company, have permanent headquarters in the UAE and as well as paid-up capital of no less than 10 million dirhams ($2.7 million).

They will also be required to invest a minimum of 10 percent of the capital for each local investment fund they set up, according to the proposals.

Funds are also domiciled out of financial free zones like the Dubai International Financial Center (DIFC) and under the proposals, DIFC-domiciled funds would be considered as foreign funds by the regulator.

Some asset management firms have come together to form an informal body called the Emirates Investment Association to address some of the common concerns emerging from the proposals.

The UAE's asset management sector was earlier regulated by the country's central bank but new rules would also mean the SCA would be responsible for oversight of licensed entities, freeing up central bank resources to monitor other institutions such as commercial banks.

Copyright Reuters, 2011