11 June 2006 — DFSA issues consultation papers

The DFSA has issued for public consultation on its website Consultation Papers No 33 and 34. These Consultation Papers seek public comment on a number of significant enhancements to the Collective Investment Funds regime which the DFSA introduced in April 2006. These enhancements are primarily designed to facilitate the establishment of Real Estate Investment Trusts (REITS) and to remove unnecessary impediments to the marketing and selling of Foreign Funds in and from the DIFC. By developing these proposals in line with international best practice, the DFSA is furthering its regulatory objective of ensuring that the DIFC is a well regulated and internationally competitive financial market.

Consultation Paper No. 33 deals with proposals to introduce an Investment Trust Law and specific requirements relating to how REITS can be established and operated in the DIFC. Currently Public Funds in the DIFC can not use the trust vehicle. The proposed Investment Trust Law fills this gap by offering that vehicle, so that Operators, particularly those coming from jurisdictions that use the trust structure for collective investments, will have that option open to them when the proposed legislation is enacted. The REITS specific proposals are designed to ensure that liquidity and other risks inherent in real estate investments are adequately addressed in a manner consistent with the international standards adopted for REITS.

Consultation Paper No. 34 deals with proposals to expand the categories of Foreign Funds that can be marketed in and from the DIFC. The DFSA’s proposals to expand the categories of Foreign Funds arose due to industry concerns that the current categories are too restrictive. Following a risk based analysis, the DFSA now proposes to expand the categories of Foreign Funds that can be marketed and sold in and from the DIFC subject to certain due diligence and other obligation imposed on the Firm distributing those Funds.

Commenting on the proposed legislation, Mr. David Knott, DFSA CEO stated:

“In addition to creating a regulatory framework for managed Funds in the DIFC which meets internationally acceptable industry standards, the DFSA also strives to promote the marketing of Foreign Funds to meet certain governance and structural standards, providing greater investor confidence. As a risk based regulator, the DFSA works in consultation with the industry to maintain its core principles of integrity, transparency and efficiency.

The proposed Investment Trust Law introduces a new investment vehicle for use by Funds to facilitate the establishment and operation of REITS products. This is in line with DFSA’s policy to adopt international standards and best practice wherever possible.”