Thistle Initiatives and Clarity Consulting Solutions recently partnered to conduct an insightful webinar. This virtual event delved into a comparative analysis of the regulatory landscapes of the Financial Conduct Authority (FCA) in the UK and the Dubai Financial Services Authority (DFSA) in the UAE. The primary goal was to aid firms aspiring to expand internationally by providing them with a comprehensive understanding of the regulatory requirements involved.
The webinar featured a panel of distinguished experts, including Adam Campbell from Thistle Initiatives, Sarah Smith and Barry Cotter from Clarity Consulting and Ali Hassan from the DIFC, who collectively discussed the intricate compliance demands faced by firms operating in both the UK and UAE.
In particular, the discussion focused on shedding light on the specific nuances relevant to investment firms and the essential steps they need to follow to attain authorisation.
Take a read of the questions and answers raised during the session below:
1. Can advisers based in the UK service clients who are temporarily (e.g. whilst working on a contract) in the UAE without permission from the host state regulator?
Whilst this is not technically a DIFC/DFSA concern, unless the client is living inside the perimeter of the DIFC, state regulators would likely not look kindly upon continued advice being offered.
If the client is in the UAE for a month or two, then we don’t believe that the local regulator would object. However, a temporary contract in Dubai can be for three years, and in this case, the client would ordinarily be deemed a resident.
In the latter scenario, this would constitute cross-border activity. Broadly speaking, the FCA will be less focused on this, and whilst we cannot speak to the federal regulator’s appetite for action on this in the wider UAE, the DFSA will have an interest, and it has recently set up a specialised Unauthorised Business Team within its Enforcement division.
Some other thoughts to consider are – does the firm’s professional indemnity cover extend to non-UK residents? Does a disclaimer about only advising on UK tax and legal implications cut it in the event of a future complaint?
Conversely, the DFSA is also conscious of global firms with staff temporarily in the UAE. It issued a communication in 2022 on this topic and emphasised that no individual may carry on any financial services activity in or from the DIFC unless licensed by the DFSA to do so. Also, non DIFC based staff should not have access to a DFSA Authorised Firms’ operational systems.
2. Can we legalise a UK license in the UAE?
If to “legalise” means that the current UK license can be recognised within the UAE, and continue to operate from the UK then – no. You will need a separate financial services license issued by the regulator to operate in this region.
In terms of the DIFC, you need to meet “substance” requirements and would need DFSA authorisation, and be physically present in the DIFC, providing your products or services to clients locally.
Having said that, you can set up via a branch from the UK into the DIFC, so in this case the branch is the same legal entity as that of its parent entity in the UK. However, “substance” requirements still apply i.e., office space and people. There are some advantages with respect to reduced local corporate governance requirements and capital requirements in this case. The FCA, as a home regulator of the head office, maintains an interest in the branch activities in the DIFC, as does the DFSA in regulating the branch directly.
3. Can UK investment firms be regulated in Dubai and not by the FCA?
No, if providing services to UK clients then you will need to become FCA regulated. You cannot passport financial services into the UK from Dubai.
If you are based in the UK, then you must be FCA-regulated to conduct financial services in the UK. You must be regulated by the DFSA to conduct financial services in or from the DIFC. Further, there is no passporting regime and the usual cross-border rules apply.
4. How are Treating Customers Fairly (TCF) and Client’s Best Interests rules applied by the DFSA?
The DFSA rules are largely based on UK and Australian regulatory practice, but historically the DIFC was a wholesale centre so its rules on retail clients are still catching up.
For example, there is nothing comparable in the DFSA rules to Treating Customers Fairly (TCF) or the relatively new FCA Consumer Duty requirements, and the complaints handling rules are generic rather than prescriptive. The DFSA has clear principles for firms and individuals as well as Conduct of Business (COB) rules designed to protect the interests of clients. Recently it has set out its intent to consider thematic reviews concerned with complaints handling and Continuing Professional Development requirements, to enhance retail client protection.
A retail endorsement application would need to be made at the point of seeking authorisation and it is at this point that increased scrutiny is applied to the business.
5. How much additional work is required to be regulated by the DFSA and the FCA?
FCA
There may be synergies, but it is important to recognise that these are two different jurisdictions, with different regulatory bodies. Firms will need local legal/compliance knowledge to be comfortable meeting their regulatory obligations.
This will also depend on whether the firm operates via a branch or a subsidiary. For international firms operating a branch in the UK, the FCA states that it will consider all relevant information i.e. if the way a firm has conducted itself in relation to unregulated business calls into question its suitability to be authorised and to meet the threshold conditions.
DFSA
It depends on the nature of the entity coming into the DIFC, and whether it will be a branch or a subsidiary.
There is comfort taken by the DFSA on entities already regulated by the FCA, given the FCA’s robust regulatory regime. However, any firm wanting to operate in two jurisdictions will have to meet the regulatory requirements in each jurisdiction – that said, the DFSA rules will not look unfamiliar to existing UK firms.
In terms of seeking a license to operate, generally speaking, the process is similar, the DFSA does however require an upfront Regulatory Business Plan ahead of formulating a formal application submission.
6. Would a UK firm be able to keep its UK-based custodian/depository and be regulated in the DIFC?
It depends upon the financial service to be offered in the DIFC. Generally, yes, the DFSA needs comfort that the custodian is based in an equivalent jurisdiction, which the UK is. If you operate a money services firm, a crowdfunding operation, a DIFC domestic fund, or a new Fintech idea, then the DFSA may require a bespoke approach.
7. What are the common questions the FCA asks? And how should we be prepared?
This varies between applications, but some common examples are around how the firm has deemed the compliance officer competent and capable of performing the role, identifying conflicts of interest, and detailing how the firm identifies suspicious transactions.
The FCA could also request the firm’s internal compliance policies and/or assessments, such as a target market or fair value assessment. So, it would be wise to have these documents prepared. We often assist firms in the preparation of these documents.
8. What are the common mistakes you see in applications? How can we best prepare to avoid these mistakes?
FCA
From recent experience reviewing applications pre-submission, we have seen the following mistakes:
- Business plans, FCA forms, financial forecasts, and other documentation do not align i.e., this could be in relation to income generated, your client base, or the customer journey.
- Inclusion of generic statements and references to positions that do not exist. For example, references to the Head of Risk when no such position exists on the firm’s organisation chart.
- Not clearly articulating the firm’s plans, but instead being vague on what the firm may or may not do.
The FCA will read all the documentation that you submit to it, so it is crucial that you are consistent throughout in describing the activities the firm will perform, the individuals within the firm holding responsibilities, any third parties involved in the provision of the service, and the systems and controls in place.
DFSA
We often see the following pitfalls:
- Being underprepared and not applying DFSA/DIFC requirements to your Business Plan and control documents.
- Concerns around “Substance” requirements, including the commitment of appropriately experienced and skilled personnel.
- Insufficient corporate governance arrangements.
9. How long does it take to get a license in the UK?
The FCA has a statutory deadline of six months from when the application is considered complete, or 12 months for incomplete applications. It may take a few rounds of FCA questions before it considers an application complete, meaning the six months will start from that point as opposed to when the application was submitted.
The overall time will vary depending on the complexity of the business model and on the individual case officer. Our most recent authorisation took just under six months from submission.
10. How long does it take to get a license in the DIFC?
It is dependent upon the financial activities and the complexity of the business model and ownership structure.
At the more complex end of the spectrum for example, in the case of a Credit Provider, the DFSA is expected to take approximately 180 days from the point of acceptance of an application to making an in-principle decision, bearing in mind that there is a scope of work that needs to be undertaken ahead of an application. The applicant will then have 6 months to meet the in-principle conditions.
Conversely, a lower-risk wealth management entity that advises and arranges deals in investments is expected to take 80 calendar days from the point of acceptance of the application to in-principle approval. The better the quality of the RBP and application are, the smoother and therefore faster the process will be.
11. How much does it cost to obtain a license?
FCA
For the FCA it depends on the permissions sought. For a firm that only arranges/ advises it could be £2,500. If you add investment management or managing an Alternative Investment Fund, it increases to £10,000.
DFSA
There is a DIFC incorporation fee of USD 8,000, a commercial licence fee of USD 12,000 and a data protection fee of USD 1,250.
There is also an application fee that would need to be paid to the DFSA, and this varies depending upon the financial services activities you are applying for, and whether you will engage with retail clients or require any other endorsements such as holding or controlling client money. Complex applications may also incur an additional complexity fee.
As an example, a rather straightforward wealth management firm engaged in advising and arranging will need to pay USD 15,000 to the DFSA as an application fee. If it was to engage with retail clients, this would be another USD 20,000. Additionally, the fees could be doubled if the application is deemed “complex” i.e., involving multiple levels of shareholding, multiple jurisdictions, or a complex mix of activities. You will also need to consider other operational costs such as renting office premises and obtaining visas.
12. Are the rules tougher in the DIFC as compared to the UK?
Although they differ, the rules are largely based on UK and Australian regulatory practice. Presently the DFSA is simplifying the capital requirements for lower-risk firms and ease entry so that authorised firms can do what they should be doing and focusing on business generation.
13. We didn’t use a 3rd party to get an FCA license, so why use a consultancy in the DIFC to obtain a DFSA license?
You don’t have to. However, a lot of firms do use a consultancy provider to support them in this process, which does indeed speed up the process, in effect making it a cost-neutral option.
You can re-watch the webinar recording here: https://www.youtube.com/watch?v=oYrPp-PX_NU
Get in touch
Thistle Initiatives
Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor and has supported 1000+ firms to pre-empt the pitfalls and get their FCA authorisation application right, with our expert FCA authorisation service. In addition to assisting, you as-and-when, our team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.
For more information about the event and how Thistle can help you become FCA regulated, please contact our specialist team now to schedule a free consultation.
Get in touch with us by calling 020 7436 0630 or emailing [email protected].
Clarity
Clarity was founded by two senior consultants in 2020, to fill the gap in the market for premium compliance services delivery, and is all about bringing passion and energy to an area that is frequently underestimated or ignored. Our team members have an exceptional track record in helping firms establish and operate in and from the DIFC, and we understand that appropriate compliance controls are fundamental to the smooth running of a company’s entire operation. Holding respect for that fact at the heart of everything we do means your interests are protected. Trust us to help you lay the right foundation so your business can shine.
For more information about how Clarity can help you, please contact our enquiries team at +971 (0)4 439 6761 or by email at [email protected], for a free consultation.
