This article outlines the main features of the new DIFC regime for Representative Offices introduced on 3rd January 2010. The new regime will permit financial institutions to establish a presence in the DIFC for the purposes of limited marketing activities in or from the DIFC. Full details of the regime can be found in The Representative Office Module (REP Module) on the DFSA website.¹

Representative Office may not have clients

Representative Offices are common in most advanced jurisdictions as this is a popular way for financial services firms to expand geographically. As regards the new DIFC regime for a Representative Office, there is a significant benefit from a regulatory perspective as much of the DFSA Rulebook is disapplied. This is because a Representative Office, unlike other categories of DFSA authorised or registered firms, is not allowed to have clients. However, potential applicants should read carefully the new REP Module which sets out substantive authorisation requirements together with the Principles and Rules which will, nevertheless, apply to the limited marketing activity allowed. These include a Fit and Proper test for the applicant and its Principal Representative which involves the completion of two straightforward forms. Applicants should also be aware that, despite the limited activity allowed, the Regulatory Law of 2004 gives DFSA important powers in relation to a Representative Office including powers of supervision and enforcement.

Permitted activity: marketing only

A Representative Office may only represent itself and other Group companies. It may not act as agent for any person outside its Group companies. The activities permitted are the marketing only of financial products and services offered by its Head Office or a member of the Group located outside the DIFC. In this context, "marketing" means providing information, engaging in promotions and making introductions or referrals in relation to financial products or services. A Representative Office must ensure that its activities do not constitute the financial service activity of advising on Financial Products or Credit or receiving and transmitting orders in relation to a financial product.

Operating a Representative Office is a stand alone Financial Services activity

Once authorised as a Representative Office, which is a stand alone activity, it is possible to apply for an upgrade to undertake one or more additional financial services activities. Existing authorised firms have the option to vary their license to operate as a Representative Office, but they would not be allowed to undertake any other Financial Service.

Summary of key features of the new DIFC regime

The key features of the DIFC Representive Office regime are summarised below:

  • Legal form: applicant must be a branch of a financial institution regulated in another jurisdiction.
  • Fit and Proper: applicant must provide a "no objection" of the Home State Regulator to the establishment of a Representative Office in the DIFC.
  • Solvency: requirement to notify DFSA immediately upon becoming aware that the institution of which the Representative Office forms a part is insolvent or unlikely to remain solvent in the near future.
  • Licence variation: applicants, once authorised, may vary the scope of their licence, subject to the usual approval process by the DFSA.
  • Principal Representative: this is not a licensed function but the Principal Representative must pass a Fit and Proper test and be resident in the UAE.
  • AML/CTF rules and UN sanctions: compliance with these is mandatory. Note that the Principal Representative may also serve as MLRO.
  • Regulatory status: must be disclosed in all communications which should be clear, fair and not misleading.
  • Appropriate disclaimer: for some marketing materials an appropriate disclaimer is mandatory.
  • Supervision focus: this will be AML controls and any trading outside scope of licence.
  • Fees: initial application fee is $2000 and annual fee is $4000.

Endnotes

1 www.DFSA.ae

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.