Consultation Paper No. 26 Investment Companies Regulations



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1. Introduction

This paper publishes for consultation the proposed Regulations for Investment Companies for inclusion in the Companies Regulations (COR). The draft Regulations are attached as Annex A. The other annex, Annex B, contains consequential amendments to COR.

These draft regulations are published for consultation purposes only. Please note that, although they are in near final form, they may still be amended in major or lesser respects before they are made under powers contained in the Companies Law 2004 by the Board of Directors of the DIFCA.

Comments are invited on any aspect of the regime proposed in this paper, on both the principles and the detailed drafting. The DFSA and DIFCA would be interested to have the views of firms considering using the corporate investment vehicles proposed in these Regulations for the purposes of collective investment and views on how these incorporated Fund structures compare with those in other major centres.

Anyone wishing to submit comments should provide details of the organisation which he or she represents. The names of commentators and the content of their submissions may be published on the DFSA and DIFCA websites and in other documents to be published by the DFSA or DIFCA. If you wish your name to be withheld from publication, please indicate this when you make your submission.

Any comments should be addressed to:
Mr Nicholas Alves
Legal Counsel
PO Box 75850
Dubai, UAE

or e-mailed to and

Dean Ferris
Chief Legal Officer
PO Box 74777
Dubai, UAE or

e-mailed to

All comments should be provided in writing, on or before 9 March 2006.
2. Background and context

The DFSA is in the process of implementing a regime for Collective Investment Funds (“Funds”). The proposed foundation law, the Collective Investment Law [2006], has already been consulted upon in October 2005 and is the subject of further consultation in Consultation Paper 26 (see DFSA’s website on This Collective Investment Fund regime is expected to be in effect on or about 31 March 2006.
3. General outline of the Funds regime

The proposed Collective Investment Law [2006] sets forth, among other matters, the general requirement that every Domestic Fund (a Fund domiciled and operated in the DIFC) must be registered unless the Fund is exempted from this requirement. There are two classes of Domestic Fund, the Public Funds and the Private Funds. Public Funds offer their units publicly and therefore need to be registered by the DFSA, whereas, Private Funds offer their units through private placement with 100 or fewer persons and therefore are exempt from the requirement to register.

It is proposed that Public Funds will be required to take the form of either:
(a) an Investment Partnership; or
(b) an Investment Company.
     Investment Partnerships form the subject matter of Consultation Paper No. 23. Investment Partnerships are partnerships where the active partner (the general or designated partner) retains the full liability normally attributed to partners in a general partnership but the investors (limited partners) are liable only to the extent of their capital contribution as long as they do not involve themselves in the management of the fund. In major jurisdictions this is known as the Limited Partnership structure, and is often used for private equity, property and venture capital funds. In fact, Limited Partnerships have been the standard vehicle for venture capital funds for many years not only in the UK but also elsewhere in for Europe. It is suggested that this experience should be followed in the DIFC.

In relation to Investment Companies, Article 90 of the Companies Law 2004 gives to DIFCA powers to facilitate the creation and incorporation of Investment Companies. The draft Regulations for this purpose to be made under Article 90 are the subject of this consultation. If made they will form a new chapter 13 in the COR.

It is proposed that Private Funds, on the other hand, may adopt any legal form for their investment vehicles, including contractual arrangements, Trusts, Investment Companies and Investment Partnerships, but not Protected Cell Companies.

Islamic Funds may be of either class, that is, in the form of a Public Fund or a Private Fund. The Operators of Islamic Funds are required, pursuant to the Law Regulating Islamic Financial Business 2004, to conduct their entire business operations and, in particular, investment functions in accordance with Shari’a. In the case of an Umbrella Fund, where one or more, but not all, of the sub-funds are Islamic, then only the business operations of the Islamic sub-funds are subject to Shari’a.

It should be noted that other published Consultation Papers are asking for views on associated matters:
•   Consultation Paper No. 23 on a proposed Limited Partnership Law [2006] and draft Regulations under that Law
•   Consultation Paper No.25 on Collective Investment Fund Rules, to be made under the proposed Collective Investment Law [2006]
•   Consultation Paper No.26 on Consequential amendments to the Regulatory Law 2004 and material amendments to the proposed Collective Investment Law [2006].
     Consultation Paper No. 23 referred to above is also a joint consultation with DIFCA, whereas, the other Consultation Papers No.25 and No.26 are DFSA consultations.

The draft Investment Companies Regulations need to be considered in the context of the DFSA’s core financial service laws, that is the Regulatory Law 2004, the Markets Law 2004, the Law Regulating Islamic Financial Business 2004, and the proposed Collective Investment Law [2006] (which will become one of the core financial services laws).
4. Application and interpretation

The draft Investment Company Regulations will apply to:
(a) Investment Companies incorporated under the Companies Law 2004 and incorporators applying for a certificate of incorporation under the Law;
(b) directors, officers and employees of Investment Companies incorporated under the Law;
(c) auditors and applicants for registration as an auditor under the Law;
(d) Foreign Companies (in relation to a transfer of incorporation to the DIFC); and
(e) the Registrar.
      Defined terms are identified throughout these Regulations by the capitalisation of the initial letter of a word or phrase. Where capitalisation of the initial letter is not used, an expression has its natural meaning. In these Regulations a reference to the Law is a reference to the Companies Law 2004.

In accordance with COR Regulations 1.1.4 and 1.2.1:

The following defined terms have the meaning given below:

Defined Term Definition
Ancillary Service Has the meaning given in the Ancillary Service Module of the Rulebook.
Ancillary Service Provider A person who is registered by the DFSA in relation to the carrying on of one or more Ancillary Services.
Authorised Firm A Person other than an Authorised Market Institution who holds a licence.
Authorised Market Institution A person who is licenced by the DFSA in relation to the carrying on of either or both of the Financial Services prescribed in Rule 2.17.1 and 2.18.1 of the General Module of the DFSA Rulebook.
DFSA Disclosure Consent Consent that is provided by an applicant, as indicated in all application forms submitted to the Registrar that the DFSA shall be authorised to provide the DIFCA with information regarding the progress of DFSA licence applications.
Fund A Collective Investment Fund under Article 18 of the Collective Investment Law [2006].
Financial Service A financial activity prescribed in the General Module of the DFSA Rulebook under Rule 2.2.2.
Recognised Body A Person who holds a Recognition Notice issued to it pursuant to Article 61 of the Regulatory Law 2004, recognising it as a Recognised Body.
Recognised Member A Person who holds a Recognition Notice, issued to that Person pursuant to Article 61 of the Regulatory Law 2004, recognising it as a Recognised Member.
Recognition Notice A notice issued by the DFSA pursuant to Article 61 of the Regulatory Law 2004.
Reporting Entity Shall have the meaning assigned to that term in DIFC Markets Law No. 12 of 2004.
The Law Means the Companies Law 2004, being DIFC Law No. 2 of 2004 issued by the Ruler.

All other defined terms have the same meaning they have under the Law. Reproduced below are two such definitions from the Law for easy reference.

Company A Company incorporated or continued under the Companies Law 2004.
Foreign Company A company incorporated in any jurisdiction other than the DIFC.

If a provision in the Regulations refers to a communication, notice, agreement of other document ‘in writing’ then, unless the contrary intention appears, it means in legible form and capable of being reproduced on paper, irrespective of the medium used. Expressions related to writing must be interpreted accordingly.

This does not affect any other legal requirements which may apply in relation to the form or manner of executing a document or agreement.
5. Purpose and summary of the material provisions of the Regulation

The purpose of the Regulations is to provide the necessary framework to facilitate and regulate the establishment of Investment Companies as legal entities in the DIFC. A new Chapter 13, made under Article 90 of the Law, is proposed to be added to the Companies Regulations. It will deal, among other matters, with:
•   new general powers to be given to the DFSA to grant or refuse consent to a Person to incorporate, or convert an existing company into, an Investment Company;
•   administrative and other matters pertaining to applications made for that purpose;
•   prescribed words to be included in the name of an Investment Company;
•   matters relating to the Articles of an Investment Company including requirements to include specific material such as:
(a) detail as to the kind of property in which the Investment Company may invest; and
(b) a statement that the object of the Investment Company is to invest in property of that kind with the aim of spreading investment risk (or, if appropriate, with the aim of investing in a single property) and of giving its members the benefit of the results of the management of that property.
•   new DFSA powers to prescribe further requirements in regard to the articles under the Collective Investment Law 2006;
•   administrative matters in respect of applications and of withdrawal of consent by the DFSA;
•   new DFSA powers to give directions to an Investment Company or any of its directors, or to apply to the Court to remove or replace directors, to appoint administrative receivers or to wind up the company; and
•   issue, transfer and redemption of shares of Investment Companies and the keeping of a share register.
     The Regulations would empower the Registrar to charge a fee for such incorporation or conversion. The amount, to be specified in Appendix 1 to the Companies Regulations, is proposed to be US$2,000, in line with the fee payable for other types of Company.

Annex A to this Consultative Paper sets out the proposed Regulations.

Annex B to this paper contains proposed amendments to the Regulations about transfers of incorporation to the DIFC: the purpose is to permit Foreign Funds which are incorporated to transfer their incorporation to the DIFC.