Dubai is opening up new avenues for economic growth and positioning itself on the world map as the regional hub for international business. Among its bold and pioneering initiatives is the creation of the Dubai International Financial Centre (the "DIFC").

The DIFC is an "Onshore" financial centre, offering a platform of choice for leading financial institutions and service providers looking to do business in the region. It has been established as part of the goal to position Dubai as a recognized hub for institutional finance, and as the regional gateway for capital and investment.

It aims to play a pivotal role in meeting the growing financial needs and requirements of the region, while strengthening links between the financial markets of Europe, the far East and the Americas.

In order to achieve its vision, the DIFC aims to provide a business – friendly environment that offers the following:

• World-class regulation and transparency. As an international financial centre, the DIFC's transparent and well-regulated environment will enable it to gain the trust of the international financial community.
• The creation of a new financial capital market which, it is envisaged, will usher in a wave of growth and prosperity for the whole region. Recognising that financial capital moves to places where it is safest and best rewarded, the DIFC's combination of transparency and zero tax rate should enable Dubai to benefit from the global "fight-to-quality".
• A safe, friendly, desirable place for people to live and work. Dubai has become internationally renowned for its quality of life, and the DIFC aims to offer a world-class work environment for financial institutions, corporation, and professional services firm that operate in the DIFC.
• An oasis of stability. The DIFC operates in a political climate that is stable, an economic environment of sustainable growth, and a social setting which is cosmopolitan and safe, with a near-zero crime rate.

Becoming an authorized entity in the DIFC

The DIFC is governed by its own legal and regulatory framework as enacted by the supervisory body the DFSA.

In a nutshell the DIFC has its own laws and regulations that are based mostly on English legislation. In addition, the DIFC has its own court and arbitration centre (DIFC Commercial Court "DCC"), and accordingly disputes can be resolved by the DCC applying its own laws and regulations set up by the DIFC rather than the UAE laws and regulations which are considered underdeveloped in relation to banking and financial transactions.

DIFC laws and regulations impose the following restrictions on DIFC Licensees:

1. they may not offer any products or services to the retail market;
2. insurance activities in the UAE shall be restricted to re-insurance;
3. UAE Federal laws (Criminal and Penal laws) will apply, the pertinent law applying to banking/financial institutions is the Criminalisation of Money Laundering. The Federal Civil and Commercial Laws do not apply;
4. they may not take deposits or deal in UAE dirahms;
5. they are obliged to ensure that certain Mandatory positions are filled, namely, Senior Executive Officer (resident), Finance Officer, Compliance and Anti-money Laundering Officer (resident);
6. they may only cater for high-net-worth individuals with liquid assets of $1 million, and to corporate clients with net assets of $5 million; and
7. all DIFC licensed entities must be situated in the DIFC. At present there is a shortage of space in the DIFC, however, firms are expected to take their allocated space immediately once it is available.

Procedure for setting up inDIFC

Prior to actual incorporation, an applicant will have to submit an application to the DIFC's regulatory body, the DFSA which will consider the merits and suitability of the applicant.

Requirements on applicants will be familiar to those institutions operating in major jurisdictions, and applicants will be expected to provide information on, at least, the following:

• The institution's business plan;
• The key individuals, major shareholders (above 5%), controllers, and structure and confirmation of their fitness and propriety;
• The operating systems and controls;
• The compliance systems, the internal audit functions, and complaints procedures;
• The anti-money laundering procedures;
• The financial position of the institution; and
• The regulatory history of the institution (its regulatory track record).

Authorized Firms in the DIFC are categorised into five distinct categories dependant on the types of activities that the Authorized Firm will be undertaking. The five Categories of Authorized Firms in the DIFC are detailed in Table 1 below.

In order to determine the category of licence for which to apply, it is important to have a clear understanding of the meaning of the financial activities details in each category.

1. Accepting Deposits, means where money received by way of deposit is lent to others, or where any other activity of the entity accepting the deposit is financed, wholly or to a material extent, out of the capital of or returns on any money received by way of deposit.
2. Providing Credit, means the provision of a credit facility (which includes any arrangement or agreement which extends monetary credit whether funded or unfunded to an entity, which includes but is not limited to any loan or syndicated loan, mortgage, overdraft, financial lease, letter of credit, financial guarantee, trade finance, transaction finance, project finance or asset finance) whether as principal or as agent, or making arrangements for another entity whether as principal or agent to borrow money by way of credit facility, or the provision of advise on entering into credit facility arrangements or agreements.
3. Dealing in Investments as Principal, means the buying, selling, subscribing for or underwriting of any investment (as broadly defined under the General Rules) as principal.
4. Dealing in Investments as Agent, which means the buying, selling, subscribing for or underwriting of any investment (as broadly defined under the General Rules) as agent.
5. Arranging Deals in Investments, which means making arrangements with a view to another entity whether as Principal or agent buying, selling subscribing for or underwriting an investment.
6. Managing Assets, means managing on a discretionary basis assets belonging to another entity if the assets include any investment or rights under a contract of long term insurance (as broadly defined under the General Rules), not being a contract of reinsurance.
7. Advising on Financial Products (i.e. an investment or rights under a contract of long term insurance, not being a contract of reinsurance), means giving advice on the merits of an entity buying, selling, holding, subscribing for or underwriting a particular financial product (whether as principal or agent), which is given to an entity in its capacity as an investor or potential investor, or in its capacity as agent for an investor or potential investor.
8. Operating a Collective Investment Scheme (which means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable an entity taking part in the arrangements, whether by becoming owners of the property or any part of it or otherwise, to participate in or to receive profits or disposal of the property or sums paid out of such profits or income), means an activity which involves the: (i) operating, establishing or winding up of a collective investment scheme; (ii) acting as the trustee or as a depositary; (iii) acting as the responsible entity or authorized corporate director of a collective investment scheme; (iv) acting as the administrator of a collective investment scheme, including the performance of valuation services or fund accounting services or acting as transfer agents or registration agents for such schemes.
9. Providing Custody, means both the activity of safeguarding investments belonging to another entity and the administration of those investments.
10. Arranging Custody, means the arranging for one or more entity to carry on the activity of Providing Custody.
11. Insurance Management, means providing management services or exercising managerial functions for an insurer.
12. Operating an Alternative Trading System, means making arrangements with a view to another Person whether as principle or agent buying or selling an Investment by way of operating a facility: (i) which is organised on a temporary or permanent basis, whether or not governed by enforceable rules; (ii) which provides a means by which over the counter (OTC) trading of Investments can take place; and (iii) which provides a system or mechanism, whether an order driven system, a quote driven system or a hybrid of such systems, which enables electronic trading or trading by other means and through which: offers to buy or sell Investments are made or accepted; buyers and sellers can negotiate the purchase or sale of Investments; contracts can be entered into for the transfer of ownership of or the title to Investments; or the prices of Investments, price movements and price and size of the most recent trades are displayed and updated.
13. Managing a Profit Sharing Investment account means managing an account, portfolio or fund which is a Profit Sharing Investment Account.
14. Providing Trust Services, means: (a) the provision of services with respect to the creation of an express trust; (b) arranging for any Person to act as a trustee in respect of any express trust; (c) acting as trustee in respect of an express trust; (d) the provision of Trust Administration Services in respect of an express trust; or (e) acting as protector or enforcer in respect of an express trust.
15. Providing Fund Administration, means providing one or more of the following services in relation to a Fund (a) processing dealing instructions including subscriptions, redemptions, stock transfers and arranging settlements; (b) valuing of assets and performing net asset value calculations; (c) maintaining the share register and unit holder registration details; (d) performing anti money laundering requirements; (e) undertaking transaction monitoring and reconciliation functions; (f) performing administrative activities in relation to banking, cash management, treasury and foreign exchange; (g) producing financial statements, other than as the Fund 's registered auditor; or (h) communicating with participants, the Fund , the Operator, the fund managers, the prime brokers, the Regulators and any other parties in relation to the administration of the Fund.

Capital

Under the DIFC laws and regulations the following rules are set in respect of capital requirements for each category:

• Authorized Firm must have, at all times, capital resources of at least the amount of its capital requirement;
• Authorized Firms must have systems and controls enabling it to determine and monitor its capital requirements; and
• An Authorized Firm may be required to calculate a Credit Risk Capital Requirement and a Market Risk Capital Requirement
• An Authorized Firms capital requirements varies, and is determined primarily on the extent of risk taken on the balance sheet of the Authorized Entity which broadly follows the various Categories of Licences to be applied for and is as follows in Table 2.

In all cases, the DIFC has a discretion to increase or waive the capital requirements for a licensed Entity.

Application Process

Various different application forms must be presented when applying to the DIFC for the first time. Those are:

• Core Information form (Form AUT – CORE);
• An Authorized Individual form (Form AUT IND 1) – i.e. an individual intending to carry out one or more Licensed Functions (Mandatory Licensed Functions for every Licensee are Senior Executive Officer, Finance Officer, Compliance Officer and Money Laundering Reporting Officer);
• Banking and/or Investment Business form (Form AUT – INV) (if applicable)
• Islamic Business form (Form AUT – ISL) (if applicable)
• Registration of a Public Fund (Form CIR F1) (if applicable)
• Providing Fund Administration form (Form AUT – FAD) (if applicable)

The time between submitting the complete application to the DFSA and the date a license is issued is estimated to be around two to three months subject to compliance with all of the DIFC/DFSA regulations (as confirmed by DIFC verbally to all applicants), this may be divided into the following:

• an initial letter of intent is sent to the DIFC and a follow up meeting held with them to finalise categories and clarify issues. The various AUTs to be completed are sent to the applicant at this time;
• once the DFSA receives an application, a letter of acknowledgement allotting an application reference number will be sent to the appropriate contact person listed within a maximum of one week from the application day;
• from the date of issuing the letter of acknowledgment and up to a maximum of three weeks the DFSA will initially review the application, and upon the conclusion of this period will issue an 'Initial Review Letter' to the applicant, who will be given a period of one week to respond if so required;
• upon the conclusion of this initial review period, the DFSA will enter into an ongoing dialogue with the applicant carrying out its own due diligence, which may involve an onsite visit, interviews, etc; and
• following from the above which may involve four to five weeks, in the event the application is acceptable, the DFSA will issue a license.

The application costs for a financial entity in the DIFC for the initial year is as follows:

1. the application fee which is dependent on the category ranges from $10,000/ to $50,000/, the application fee for Category 3 and 4 license is currently $10,000 (the "Application Fee"), in addition to the amount of $1,000 per Authorized Individual. Please Note that the maximum total that this may reach is $100,000.
2. In addition to the application fee as indicated above the applicant must also pay an annual fee. For subsequent years the cost of incorporation in the DIFC will be the Application Fee, $1,000/ as per authorized individual, and $1,000/per $1 million turnover; capped at a maximum of $150,000.

Author biography

Husam Hourani Partner & Head of Banking & Finance Department Al Tamimi & Company Husam Hourani heads the firm's banking and finance department and has nine years experience advising on banking and finance related matters in the U.A.E. Hegraduated from Kent University, England with an honours degree in law in 1992 and was subsequently awarded his Masters degree in 1993 from IISL in Spain. Husam has considerable experience in establishing new and existing banks and financial institutions on the U.A.E and in the DIFC. He also regularly advises on enforcement and banking litigation matters. Along with being presented Best Lawyer award from Tamweel in 2005, he is also a member on the DIFX Listing Committee. Legal500 states that Husam Hourani has been described by clients as "the most knowledgeable banking lawyer in Dubai, insofar as the local market is concerned" and is noted for his expertise in relation to the newly established DIFC. Furthermore, Chambers Global affirms that Husam is "extremely responsive and knowledgeable," yet "doesn't put on any airs and graces".

Company profile

Al Tamimi & Company Al Tamimi & Company is a leading law firm in the Arabian Gulf region. It is the largest local non-affiliated law firm based in the UAE with offices in Abu Dhabi, Dubai, Sharjah and Dubai Internet City (DIC). "Non-affiliated" means we are not a branch office of one of the large English or American Law Firms. We are also the only large firm that offers both consultancy and litigation services. Most of the Western firms offer consultancy services only and any litigation must be contracted out to local lawyers. Furthermore, Al Tamimi & Company has an office based in Baghdad, Iraq; and additionally has an associate office in Doha, The State of Qatar, namely Adv. Mohammed Al-Marri in association with Al Tamimi & Company. Our Areas of Practice Our services include a full range of corporate and commercial legal services and our clients include governments and other public bodies, international agencies, multi-national corporations, financial institutions, private companies and non-profit organizations. A high proportion of our business is with multi-national corporations. The firm advises on all aspects of corporate law, including public issues, mergers and acquisitions, joint ventures, IPO's, privatization, energy and natural resources, banking and financial law (including Islamic banking and mutual funds), media and telecommunications, intellectual property, shipping, the environment, a family business practice and local and international litigation and arbitration. P.O. Box 9275 Dubai, United Arab Emirates Tel: (971) 4 331 7090 Fax: (971) 4 331 3177 email info@tamimi.com www.tamimi.com