FINANCIAL INVESTMENT COMPANIES AND BANKING, FINANCIAL AND

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In terms of the procedure for setting up, the above businesses are naturally subject to any Federal law applica- ble to them such as the Commercial Companies Act (Law No.8 of 1984) etc.

Such businesses would also need to adhere to the provisions of the 1980 Law and any Resolutions, Decisions or Regulations issued thereunder.

In the early 1990’s it became apparent to the Central Bank that there was an urgent need to regulate such busi- nesses due to the large number of licence applicants, to carry out these types of businesses in the U.A.E. The Board of Directors of the Central Bank decided in its meeting on 18.04.1995 to issue Resolution No.164/8/94 to regulate the said businesses.

3.1     Financial Investment Companies

A Financial Investment Company is defined in Article 1 of Resolution. 164/8/94, as “a juridical person who con- ducts financial investment business”.

3.1.1. Activities

Article 2 of the same Resolution provides a list of the activities that may be conducted by a Financial Investme Company namely;

(a)    Opening of investment accounts and portfolio management on behalf of third parties (whether companies or individuals);

(b)   Preparing feasibility studies for projects and marketing of share public offerings;

(c)   Formation and/or management of Investment  Trust Funds (as defined in the same Resolution);

(d)    Formation and/or management of other Investment Funds and acting as Trustee for funds entrusted to it by a Settler on behalf of a Beneficiary; and

(e)   Subscribing to companies’ share capital and syndicated loans.

The Central Bank may extend the license granted to a Financial Investment Company thus enabling such com- panies to act as a broker in the purchase and sale of local and/or foreign securities, foreign exchange dealing and to provide banking financial and investment advice. Such extension is naturally subject to satisfying the licensing requirements for these additional activities by the relevant Financial Investment Company seeking such additional powers.

3.1.2. Financial Resources

The financial resources for a Financial Investment Company may be any one or all of following:

In addition to the above financial resources, a financial investment company may obtain funds from third par- ties for investing such funds on behalf of such third parties.

A financial investment company may also open investment accounts for third parties. It may also borrow from third parties.

A Financial Investment Company may not, however, accept funds in the form of deposits from the public in any form whatsoever.

One important source of funds is the ability to issue bonds, however, this ability is always subject to the prior approval of the Central Bank.

3.1.3  Licensing Requirements & Conditions

3.1.3.1  Application

Article 6 of Resolution No.164/8/94, contains a restriction forbidding any person from undertaking the activities of a financial investment company without obtaining the prior written approval of the Central Bank.

An application for a “Financial Investment Company” should, by definition, be submitted by a company. Such

Application would be made on the Central Bank’s prescribed form accompanied by the following documents:

(a)    a statement highlighting the nature and extent of the investment business, any future development plans in addition to details on the management of such business;

(b)   a notarised copy of the Articles and Memorandum of Association; (c)    a statement detailing the management and staff structure;

(d)    an undertaking to adhere to the provisions of the 1980 Law and Law No.(8) of 1984 relating to Commercial Companies, Resolution No. 164/8/94 and any other instructions, circulars, directives or communications issued by the Central Bank in respect of financial investment businesses. And also an undertaking to open its records to inspection and auditing by the Central Bank; and

(e)   any other information or documents that the Central  Bank may request.

3.1.3.2  Conditions

The following conditions must be satisfied prior to applying for a “Financial Investment Company’s” licence:

(a)    paid-up capital not less than U.A.E. Dhs.25,000,000 to conduct certain activities as specified in the Resolution. The Central Bank may require a higher capital if the Company requires to obtain licence for additional activities ;

(b)   national shareholding should not be less than 60% of the total paid-up capital, and the number of founders should be not less than (12);

(c)    the majority of the Company’s Board of Directors should be U.A.E. nationals including the chairman; (d)       the Chairman of the Board of Directors of the company should be a U.A.E. national; and

(e)   the founders must all be of good standing personally and professionally.

3.1.4  Extent of the licence

If granted, a licence would be valid for 3 years and may contain various conditions as the Central Bank sees fit. The Central Bank has reserved to itself in Article 11 of the above Resolution, the right to withdraw, revoke,

amend or cancel any licence at any time if any of the events referred to in Article 11 occur which include: insol- vency, reduction in the share capital and where the Central Bank is satisfied that the licensed person is unable to perform its continuing obligations which include:

•   not to subscribe in more than 25% of its own funds in the same securities;

•   not to alter the legal structure unless previously approved by the Central Bank;

•   not to open a branch without obtaining the prior approval of the Central Bank; and

•     not to act contrary to the provisions of Resolution No.164/8/94 and any replacement or amendments there- of at any time.

3.2     Investment Funds

Investment Funds are also subject to the provisions of Resolution No.164/8/94.

Investment Funds are defined as “the funds collected from investors interested in investing their money in for- eign or international stocks and shares and/or capital markets, whether local or foreign. The investors contribute through the purchase of shares, units or certificates (of equal values), issued by such fund, provided always that the aggregate value of such certificates,  shares or units is equal to the value of the share capital of that Investment Fund”.

Who Can Create an Investment  Fund ?

Article 4 (1) of Resolution No.164/8/94 stipulates that “except for exempt investment funds under the 1980 Law, no investment funds may be established or announced without being licensed by the Central Bank”.

[Exempt funds under the 1980 Law are: (a) governmental  development funds; and (b) private savings and pen- sion funds).

An Investment Fund may, pursuant to Article 4 (2) of the above Resolution be created by either (i) a licensed financial investment company; or (ii) a licensed bank.

Such bank or financial investment company shall prepare a prospectus (similar to the Articles and Memorandum of Association of a company) in which all details relating to the fund must be included therein e.g. objectives, share capital, financial objectives, list of assets, management structure ....etc.

Each Investment Fund must have an administrative committee consisting of the fund manager and unit, share or certificate holders of the fund.

3.3     Banking, Financial & Investment Consultancy Institutions and Companies (“a Financial Consultant”).

A licensed person authorised by the Central Bank to carry out the activities of a Financial Consultant may carry out any of the following activities:

(a)   prepare feasibility studies relating to investments in banking and financial projects or relating to invest-ments in the financial markets;

(b)   prepare business plans with a view to improving the performance of existing financial or banking project; (c)   provide any person with an opinion relating to the value of any security or other financial instrument;

(d)   prepare recommendations to any person relating to banking or financial activities; and

(e)    prepare periodical or non-periodical reports relating to the banking system and structure and related serv- ices provided that such reports are distributed on a limited scale.

3.3.1  Application and Licence

Any person wishing to practise  as a Financial Consultant must obtain the approval of the Central Bank prior to commencing such activities in the U.A.E.

Readers are kindly requested to refer to Section 3.1.2 above for the documents required for a licence. In addi- tion, if the applicant for a Financial Consultant licence is a natural person (i.e. individual) then copies of the identity card (if a U.A.E. national) and passport must also be submitted.

3.3.2  Licensing Conditions

The following conditions must be satisfied before a “Financial Consultant” licence may be issued: (a)    The paid-up capital shall not be less than Dhs.1,000,000;

(b)   Contribution or shareholding by a U.A.E. national shall not be less than 60% of the total paid-up capital; (c)    The majority of the Board of Directors and Chairman should be U.A.E. nationals;

(d)   If the applicant is a natural person he or she must be a U.A.E. national; and

(e)   The applicant or applicants must be of good personal and professional standing.

A licence, when granted, will be valid for three years. However, it is always subject to amendment, withdraw- al, revocation or cancellation by the Central Bank if the licensed person commits a breach of the applicable rules and regulations.

3.3.3  Can a Non-U.A.E National Apply for a Licence to Become a Financial Consultant?

Article 16 of Resolution No 164/8/94 provides that “the Central Bank may, if needed authorize a non-U.A.E. national to apply for and obtain a licence as a Financial Consultant Provided always that (i) the application is made by an individual (not a company); and (ii) the applicant satisfies the provisions of the Resolution.

3.3.4  Exempt Persons

The following are exempt from the requirement to obtain a licence from the Central Bank to carry out the activ- ities of a “Financial Consultant”:

(a)    Any Lawyer, Accountant, Engineer, Teacher whose financial consultancy and opinions are incidental to their profession;

(b)   Any broker or dealer who provides financial opinions as an incidental part of his profession; (c)    Any publisher of financial newspapers or magazines; and

(d)   Any other person exempt by the Central Bank from time to time
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