This note provides a brief overview of Abu Dhabi Global Market's new financial regulatory framework. This framework was established in 2015, following the publication of the ADGM's Financial Services and Markets Regulations 2015 and the making of a series of rules.
Introduction
The financial services regulatory framework for the Abu Dhabi Global Market ("ADGM") aims to reflect current international best practice by incorporating the best aspects of regulatory regimes in Europe, the US, Singapore, Australia and Hong Kong. The framework is derived primarily from the UK's financial regulatory framework, with influences from other jurisdictions, and has been tailored to local needs. ADGM will build on Abu Dhabi's inherent strengths in asset management, wealth management, private banking and family offices to establish an internationally-aligned financial centre that is based on Common law practice, providing businesses with the means to grow and succeed.1
Regulatory Framework
The Financial Services and Markets Regulations 2015 ("FSMR")2 comprises a piece of legislation adopted by the Board of ADGM. It is supplemented by various rulebooks as well as indicative, non-binding guidance issued by the ADGM Financial Services Regulatory Authority (the "Regulator" or "FSRA"). Regulatory Supervision FSMR contains two general restrictions which broadly set out the range of financial services that would trigger a licensing requirement for activities undertaken within and from the ADGM3. The first prohibits persons from carrying on a regulated activity4 without either authorisation or the benefit of an exemption: the "General Prohibition." The second requires that all financial promotions5 either be made by a firm that is licensed by the Regulator (a "Regulated Firm") or have their content approved by a Regulated Firm:6 the "Financial Promotion Restriction." Unlike the UK regime, there is no exemption for making financial promotions to high net worth individuals. Regulated Firms are also prohibited from accepting deposits from the UAE markets and may not undertake foreign exchange transactions involving UAE dirhams.7
The Regulator may take disciplinary action, such as imposing a public censure or financial penalty, against any corporate or individual which breaches either restriction. There may also be further commercial consequences following breach of either restriction, such as agreements being rendered unenforceable. There are two levels of regulatory supervision within the ADGM: one for Regulated Firms (known in FSMR and the Rules as "Authorised Persons" although referred to in this note as Regulated Firms) and one for individuals employed by those firms. The first level comprises the assessment and authorisation by the Regulator of firms seeking to perform regulated activities in ADGM and the ongoing supervision of such firms. Once a firm is authorised, it will have permission to carry out its relevant regulated activities. The second regime relates to the individuals working within an authorised firm and comprises two further layers. Individuals who perform certain "Controlled Functions" (i.e. chief executive officer and all directors) in the businesses of Regulated Firms must be assessed and approved by the Regulator. Once approved, such individuals are known as Approved Persons. However, rather than having the Regulator police and approve other senior managerial appointments, the Regulated Firms themselves are responsible for assessing and approving customer-facing and senior managerial staff who perform "Recognised Functions" (e.g. senior managers, customer-facing staff, the compliance officers, money laundering reporting officers). These individuals are known as Recognised Persons. This approach places the responsibility on firms to initially assess the individuals that they employ in these roles and to continually assess their competence, fitness and propriety. It will also reduce the Regulator's administrative burden in comparison to some other regimes.
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Footnotes
1 You may like to see our client notes on other aspects of the ADGM framework: "Abu Dhabi Global Market: The Application of English Common Law," available here; "Abu Dhabi Global Market: Establishing a Company," available here; and "Abu Dhabi Global Market: Obtaining a Commercial Licence," available here.
2 Available here.
3 Regulated activities are activities carried on by way of business which relate to a "specified investment." See Table A for a list of regulated activities and "specified investments."
4 As specified in Schedule 1 of FSMR, available here.
5 As defined in Schedule 2 of FSMR, available here.
6 A Regulated Firm is a legal person, other than a Recognised Clearing House or Recognised Investment Exchange, who is authorised under FSMR to carry out certain regulated activities in or from the ADGM.
7 Chapters 4.2-3 of COBS, available here.
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.
