x Abu Dhabi, UAEThursday 27 July 2017

Change in oversight for fund managers

The Securities and Commodities Authority has finalised plans for a shake-up of the investment management industry, under which it will assume oversight of fund managers.

Under the new regulation, SCA will become the licensing authority for investment funds, which are currently regulated by the Central Bank. Pawan Singh / The National
Under the new regulation, SCA will become the licensing authority for investment funds, which are currently regulated by the Central Bank. Pawan Singh / The National

The Securities and Commodities Authority (SCA) has finalised plans for a shake-up of the investment management industry, under which it will assume oversight of fund managers.

Under the new regulation, SCA will become the licensing authority for investment funds, which are currently regulated by the Central Bank.

The rules will enhance transparency and oversight of funds for the mass market and could entice greater investment, said Tariq Qaqish, the deputy head of asset management at Al Mal Capital.

"Having the proper regulations and best practices will attract not only investment managers to launch new products, it will attract foreign investors if they're happy with the regulations," he said.

The new Investment Funds Regulations, first proposed in 2009, are "currently awaiting publication by the Ministry of Justice", a spokesman for SCA said, declining to indicate a date for their enactment.

The UAE's large financially savvy expatriate population gives the country great appeal to regional fund managers, but they have complained that regulation is deficient. The UAE this year set the wheels in motion to move the country towards a "twin-peaks" model of financial regulation, where the Central Bank sets monetary policy and regulates risk, while the SCA handles market conduct and investor protection.

As part of this, the remit of the SCA will be significantly expanded to cover insurance regulation and consumer protection. The body is expected to be renamed under the working title of the Emirates Financial Services Authority.

Until now, much of the Arabian Gulf's fund-management industry has centred on Bahrain because of the high quality of regulation by the kingdom's central bank.

Revamped laws governing asset management would help the UAE to compete for investment funds more effectively, Mr Qaqish said.

Banks and fund managers have complained that uncertainty over the form that the new regulations would take - and protracted delays in issuing the new laws - had made it difficult to establish funds in the UAE for all but the biggest institutional clients.

Funds managed from the Dubai International Financial Centre (DIFC) would not be affected by the changes, unless they offered services to the UAE retail market. The DIFC is regulated by the Dubai Financial Services Authority.

Tim Plews, the head of financial services in the Middle East at the law firm Clifford Chance, said the lack of clarity in regulation had been poorly received by firms in the free zone.

"It's had a chilling effect on the firms in the DIFC as to any ambitions they might have had to promote funds to the UAE mass market," he said "There's a range of fund managers who fall into that category and who've ignored the UAE mass market and focused on what they generally do - discreet private placements of a large size in the funds they promote across the region."

The SCA has moved to allay the concerns of boutique investment firms by allowing for "light-touch" regulation of funds placed privately with big institutional investors and high-net-worth individuals.

Previously, fund managers had raised concerns that the new rules left them disadvantaged to the benefit of banks, limiting the creation of sophisticated instruments in favour of mass market funds for retail investors.

ghunter@thenational.ae

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