NEWS Fiscal & legal

Difc, licensing and registration to conduct financial services

The Dubai Financial Services Authority supervises regulated participants and monitors their compliance with applicable laws regulations and rules

Dubai Financial Services Authority (DFSA)
Created under Law No 9 of 2004 and entirely independent of the DIFC Authority and the DIFC Judicial Authority, the DFSA is the integrated regulator responsible for the authorization, licensing and registration of institutions and individuals who wish to conduct financial and professional services in or from DIFC. The DFSA also supervises regulated participants and monitors their compliance with applicable laws regulations and rules. The DFSA is empowered to make rules and regulations, as well as develop policy on relevant market issues and, in turn, enforce the legislation that it administers.
Applicants must provide detailed submission to the DFSA on a wide range of matters. The DFSA rigorously assesses this information to ensure that an applicant is both willing and able to achieve and preserve the high standards applicable in DIFC. The DFSA assesses operating standards relating to competence, financial soundness and integrity. It considers the extent to which a firm, and any of its group entities, may be subject to external regulation, as well as the extent to which those regulators share the DFSA’s high standards of regulation.
The application process entails:
  • an applicant’s fitness and suitability to hold a licence, authorization, or registration
  • the professional, or industry qualifications, competence, and experience of an applicant’s employees
  • the robustness of an applicant’s business plan, and its ability to effectively manage and control its activities
  • an applicant’s background and regulatory history
  • whether an applicant has sufficient resources, including those relating to capital, systems, personnel, risk management, and internal controls
  • the suitability of an applicant’s controllers and other closely linked entities, and the jurisdictions in which they are established, and
  • the applicant’s willingness to deal in an open and co-operative manner with the DFSA
The following financial services are permitted by authorized firms in the DIFC and regulated by the DFSA:
  • Accepting deposits
  • Providing credit
  • Providing money services
  • Dealing in investments as principal
  • Dealing in investments as agent
  • Arranging credit or deals with investments
  • Managing assets
  • Advising on financial products or credit
  • Operating a collective investment fund
  • Providing custody
  • Arranging custody
  • Effecting contracts of insurance
  • Carrying out contracts of insurance
  • Insurance determination
  • Insurance management
  • Managing a profit sharing investment account
  • Operating an alternative trading system
  • Providing trust services
  • Providing fund administration
  • Acting as trustees of a fund
Categories of Licences
Authorized Firms can be divided into five categories of licence, each with its own rules and capital requirements.
Category 1 (Full licence)
Accepting Deposits, Managing a Profit Sharing Investment Account (PSIA)
Category 2 (Principal)
Providing Credit, Dealing in Investments as Principal
Category 3 (Asset Management)
- Dealing in Investments as Principal (where it does so only as a Matched Principal) or Dealing in Investments as Agent
- Providing Custody (where it does so for a Fund) or Acting as the Trustee of a Fund
- Managing Assets, Managing a Collective Investment Fund, Providing Custody (where it does so other than for a Fund), Managing a restricted PSIA or Providing Trust Services (where it is acting as trustee in respect of at least one express trust)
Category 4 (Advising and Custody)
Arranging Credit or Deals in Investments, Advising on Financial Products or Credit, Arranging Custody, Insurance Intermediation, Insurance Management, Operating an Alternative Trading System, Providing Fund Administration or Providing Trust Services (where it is not acting as trustee in respect of an express trust)
Category 5 (Islamic Financial Institutions)
The activities above fall in different licence categories according to the base capital requirements:

Category Licence                   Base Capital Requirement
Category 1                             USD 10 million
Category 2                             USD 2 million
Category 3                             USD 500.000
Categories 2 and 3,
depositaries of mutual
funds or provide custodian
services                                   USD 4 million
Category 4                              USD 10.000
Category 5                              USD 10 million

How is Setting Up in the DIFC Different From Onshore

  • In principle, it is not possible for international companies to carry out their trading or service activities in the UAE without local participation
  • DIFC allows for the establishment of 100% foreign owned companies, either as a branch of an already existing foreign company or as a 100% incorporated company within the DIFC
  • The companies undertaking the financial services will not be subject to the laws and regulations of the UAE Central Bank and/or SCA, instead will be governed by the DFSA laws and regulations
  • The Federal Decree and the General Module (GEN) of the DFSA Rulebook and the Conduct of Business Module (COB) of the DFSA Rulebook describe prohibited financial activities, including:
  • deposit taking from the State’s markets;
  • dealing in UAE Dirhams by banks;
  • insurance business with individuals; and
  • direct insurance of risks located in the UAE
An Authorized Firm cannot operate from within the DIFC but have customers outside it and may not engage in any DIFC prohibited financial activities irrespective of where its customers are based.
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