New UAE rule bars direct subscriptions to ‘foreign funds’ by investors

UAE Implements New Rule Restricting Direct Subscription to Foreign Funds

In a significant regulatory shift, individual investors residing in the UAE will no longer have the option to directly subscribe to foreign funds through their bank accounts, as per the latest directives from the regulator. This new rule, which came into effect on April 1, has prompted banks across the UAE to promptly inform their clients of the updated regulations. It is important to note that the rule applies specifically to subscriptions initiated after this date, allowing existing investment commitments to proceed unhindered, as indicated by banking sources.

This development signifies that ‘ordinary investors’ in the UAE will no longer have access to foreign funds for subscription through their bank accounts. Conversely, ‘professional investors’ can still partake in foreign funds, provided they meet the minimum investment threshold of Dh500,000 per foreign fund. This segmentation between ‘ordinary’ and ‘professional’ investors is crucial, with ‘ordinary investors’ being those with funds of up to Dh500,000 available for deployment, while ‘professional investors’ are defined by assets not less than Dh75 million, excluding short- and long-term liabilities, and an annual income of not less than Dh150 million.

The directives issued by the UAE’s Securities & Commodities Authority (SCA) to banks underscore the regulatory intent to mitigate risks for UAE-based investors engaging with foreign funds that lack local licensing. By restricting direct subscriptions, the regulator aims to minimize exposure to unregulated foreign funds, thus safeguarding investors’ interests.

Financial services sources highlight a surge in overseas funds attempting to entice UAE-based investors with promises of market-beating returns. While UAE residents can still access these foreign funds, they must now do so through their bank accounts in their home countries, aligning with the revised regulations.

The regulatory adjustment is expected to bolster UAE-licensed funds and domestic stock markets, further stimulating retail investor participation. Naqqash Ahmed, Managing Director of Capital Plus, predicts sustained inflows into local stocks, building upon the momentum generated by recent IPO activity.

The regulatory overhaul marks a significant evolution in the UAE’s financial landscape, with heightened emphasis on investor protection, regulatory compliance, and the promotion of domestic capital markets