10 Leaves: Recent Episodes

10 Leaves Limited

Take a good look into how financial service businesses are authorised in the DIFC and the ADGM.

We also assist you with setting up funds and obtaining financial licenses in Luxembourg.

Get in touch should you wish to engage 10 Leaves to work on your licensing application!

https://10leaves.ae/

You can also read the article here:

https://10leaves.ae/publications/difc/difc-artificial-intelligence-and-web-3-0-licenses

DIFC is building the world-class Campus spanning over 100,000 sq. ft. within the DIFC jurisdiction.

Dubai AI & Web 3.0 Campus’ will attract over US$ 300 million in collective funds, 500+ global AI and Web 3.0 start-ups, and create 3000+ jobs by 2028.

The Dubai AI & Web 3.0 Campus will provide world-class physical and digital infrastructure including R&D facilities, accelerator programs and collaborative workspaces, to attract, build and scale AI companies.

The DIFC AI and Web 3.0 License is one of the cornerstones of the push towards making the DIFC, and the UAE, a hub of technological innovation and advancement.

Firms interested in managing funds from the ADGM are required to submit applications to the Financial Services Regulatory Authority, or FSRA.

The FSRA has a fast-track process for Fund Manager licenses, which come under Category 3C. The Fund Manager, if approved, can manage domestic professional (Exempt and Qualified Investor Funds) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.

Did you know that in 2019 alone, criminals moved a whopping $2.8 billion in Bitcoin? Yes, you read that right! Cryptocurrency is now one of the preferred destinations for illicit funds by criminals worldwide. Surprisingly, more than half of this amount was transferred to just two exchange platforms - Binance and Huobi.

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Relevant links below:

https://home.treasury.gov/news/press-releases/jy1391?utm_source=riffle.beehiiv.com&utm_medium=referral&utm_campaign=from-the-international-desk

https://resources.hummingbird.co/product-updates-and-news/apps?utm_source=riffle.beehiiv.com&utm_medium=referral&utm_campaign=from-the-international-desk

https://www.eba.europa.eu/calendar/consultation-draft-guidelines-amending-risk-based-supervision-guidelines?utm_source=riffle.beehiiv.com&utm_medium=referral&utm_campaign=from-the-international-desk

https://www.gov.uk/government/news/changes-to-reporting-material-discrepancies-to-companies-house?utm_source=riffle.beehiiv.com&utm_medium=referral&utm_campaign=from-the-international-desk

This episode is also available as a blog post: https://riffle.beehiiv.com/p/international-desk

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A Fixed Penalty Regime (FPN) is coming. Put very simply, it works as follows:

Breach occurs
DFSA issues an FPN.
Pay the penalty (maximum US$ 50,000) and remedy the breach.
If you do 3, DFSA doesn’t sanction you. No public censure and no fine.
If you don’t do 3, DFSA can launch enforcement proceedings (i.e. not good news)

Read more here.

This episode is also available as a blog post: https://riffle.beehiiv.com/p/lets-talk-penalties

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The new consultation paper clarifies the DFSA’s stance on Payment Accounts for corporate clients, which allows greater flexibility for money service businesses to offer multiple functionalities to their customers, including larger sums held in Payment Accounts, multi-currency virtual IBANs and issuance of pre-paid cards.

Read the consultation paper here.

And details on the EMI license here.

This episode is also available as a blog post: https://riffle.beehiiv.com/p/money

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What kind of a name is Riffle? Is it Rifle? As in smoking gun?

Err, actually that’s a great alternative name by the way. But no, it’s called Riffle - as in riffling through many pages, turning them over, having a quick look.

AHA. So you don’t go into detail - a casual look at things.

I wouldn’t put it that way. More like giving you a gist of info, rather than a pile that no one cares to read.

Nice. And why are we having a convo again? Isn’t this serious stuff?

Of course! Compliance and AML are mighty serious, and this is why we came out with the Riffle. To give you a channel to ACTUALLY read stuff that matters, rather than…for lack of a better word - riffle through it.

And yes, a bit of bionic reading thrown in. You know, the bold bits that actually matter and make you read faster?

This episode is also available as a blog post: https://riffle.beehiiv.com/c/about-riffle

This episode is also available as a blog post: https://10leaves.ae/publications/difc/hedge-funds-in-the-difc

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

During 2022, a record number of hedge funds registered in the Centre, with more expected to open in 2023. It has been reported that over 60 hedge funds are in DIFC's pipeline.

The global hedge fund sector is still dominated by older, more established centres like London and New York, but the Middle East is a young market where Dubai offers all the necessary circumstances for expansion, especially in the aftermath of the Covid epidemic. Due to the government's successful management of the outbreak and the far less limitations there than in other centers, Dubai had a significant inflow of managers throughout the pandemic. This gave managers the chance to see firsthand the various benefits the emirate provides hedge funds contemplating establishing an office there.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-venture-studio-launchpad-license

The DIFC has now announced the launch of the first global “Venture Studio Launchpad” to assist with the growth of the UAE’s financial ecosystem, and to be a growth partner and business enabler to venture studios, allowing them to set up and scale from the DIFC. The Proposed Venture Studio Regulations provide the legal and regulatory framework under which venture studios, and similar arrangements, and any “spin-off” entities formed by venture studios, can establish and operate in the DIFC. This initiative complements the existingDIFC Venture Fund Manager Framework, and theDIFC Innovation licenseinitiatives, which together will serve to make the DIFC the leading destination for both innovators and their funding partners.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-venture-studio-framework

Last year, the DIFC announced the launch of the first global “Venture Studio Launchpad” to assist with the growth of the UAE’s financial ecosystem, and to be a growth partner and business enabler to venture studios, allowing them to set up and scale from the DIFC. The Proposed Venture Studio Regulations provide the legal and regulatory framework under which venture studios, and similar arrangements, and any “spin-off” entities formed by venture studios, can establish and operate in the DIFC. This initiative complements the existing DIFC Venture Fund Manager Framework, and the DIFC Innovation license initiatives, which together will serve to make the DIFC the leading destination for both innovators and their funding partners.

The proposed venture studio model enables venture studios to establish a company in the DIFC that acts as both a holding and operating vehicle (“Venture Studio”), licensed to incubate new business ideas (each a “Venture”) and, if they reach a minimum viable product (“MVP”) stage, to convert the Ventures to newly incorporated Venture Studio entities (each a “Venture Studio Company”).

This episode is part of the 10 Academy training series.

Here is a bit about how we at 10 Leaves can help you.

We provide turnkey services for getting authorised, and staying authorised. Our GRC team is at hand to help you with ongoing compliances, prudential reporting and risk management. We also assist you with maintaining good corporate governance in the Firm, one aspect that is much overlooked by most firms that we have consulted. In addition to this, we help with accounting and bookkeeping activities and filing of VAT returns on a regular basis. The newly-issued Tax Laws may also be relevant to the Firm and we will assist you in registering with the authorities and creating tax efficiencies for the business.

Well, that’s it for today. Thank you for listening, and do get in touch with us by writing in to us at connect@10leaves.ae. Do also visit our website at www.10leaves.ae.

Do contact us for further details!

Wikipedia defines a holding company as “a company that owns other companies' outstanding stock.”

In short, a holding company consolidates investments, be it shares in other companies or property, under a common umbrella, for ease of management and reporting. Such companies do not usually carry out a trade or service – they merely manage existing investments. The management team of the holding company also seeks to make new investments, based on certain pre-determined criteria, to expand their existing portfolios.

The ADGM offers both passive and operational holding companies. ADGM SPVs can only act as passive holding companies, and so cannot avail visas or functional office space in the centre. The advantage is that where there is no operational requirement, an ADGM SPV can act as a holding structure for a relatively low cost, and offer flexibility at the same time.

What assets can an ADGM SPV hold?The SPV in the ADGM can hold any types of securities, including bonds, listed or unlisted shares in downstream entities, stocks, real estate worldwide, cash and commodities, loans, and intangible assets such as Intellectual Property and Patents.

This episode is part of the 10 Academy training series.

Here is a bit about how we at 10 Leaves can help you.

We provide turnkey services for getting authorised, and staying authorised. Our GRC team is at hand to help you with ongoing compliances, prudential reporting and risk management. We also assist you with maintaining good corporate governance in the Firm, one aspect that is much overlooked by most firms that we have consulted. In addition to this, we help with accounting and bookkeeping activities and filing of VAT returns on a regular basis. The newly-issued Tax Laws may also be relevant to the Firm and we will assist you in registering with the authorities and creating tax efficiencies for the business.

Well, that’s it for today. Thank you for listening, and do get in touch with us by writing in to us at connect@10leaves.ae. Do also visit our website at www.10leaves.ae.

Do contact us for further details!

This episode is part of the 10 Academy training series.

Here is a bit about how we at 10 Leaves can help you.

We provide turnkey services for getting authorised, and staying authorised. Our GRC team is at hand to help you with ongoing compliances, prudential reporting and risk management. We also assist you with maintaining good corporate governance in the Firm, one aspect that is much overlooked by most firms that we have consulted. In addition to this, we help with accounting and bookkeeping activities and filing of VAT returns on a regular basis. The newly-issued Tax Laws may also be relevant to the Firm and we will assist you in registering with the authorities and creating tax efficiencies for the business.

Well, that’s it for today. Thank you for listening, and do get in touch with us by writing in to us at connect@10leaves.ae. Do also visit our website at www.10leaves.ae.

Do contact us for further details!

This episode is part of the 10 Academy training series. Do contact us for further details!

This episode is also available as a blog post: https://10leaves.wordpress.com/2022/07/10/emi-licenses-in-the-difc/

Firms interested in carrying out Money Service activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Providing Money Services (includes issuing payment instruments, providing money transmission, issuing stored value and providing or operating a payment account).

This episode is also available as a blog post: https://10leaves.ae/publications/difc/credit-funds-in-the-difc

What is a credit fund?

Credit funds are collective investment funds that use fund property (i.e., investors’ money) either to originate, or to purchase, loans, or both. The limited options for borrowing from banks in certain markets have led to the increase in the opportunity for fund managers to provide private credit, through specialize credit funds.

Fund managers have been able to obtain access to reliable deal flow directly from targeted market segments, making use of underlying collateral, as well as gaining access to lending transactions with banks and purchasing loan portfolios from banks and other loan originators.

What does DFSA consider a Credit Fund?

Credit Funds are a specialist class of funds in the DIFC, in which investor’s money can be used for the direct purchase of loans or purchase of loan portfolios. To be a Credit Fund, at least 90% of the Fund Property should be used for either loan origination or loan portfolio acquisition. These funds can be Exempt Funds or Qualified Investor Funds, but not Retail Funds. They can be set up as Investment Companies or Limited Partnerships. The Investment Trust structure is not permissible for Credit Funds in the DIFC. Also, such funds would have to be closed-ended, with a maximum tenure of 10 years, and cannot have leverage of more than 10% of the Fund’s Net Asset Value.

This episode is also available as a blog post: https://10leaves.ae/publications/blockchain-crypto/registering-and-licensing-defi-and-dapps-in-the-difc

How to register a DeFi or DApp project in the DIFC

The Middle East has seen a flurry of tech-related activity in the recent years. Tech companies are characterized by rapid ideation followed by implementation at an equally rapid pace. Another commonality is that most tech companies start small, and then ramp up quickly upon securing funding. However, managing costs at the onset is critical, especially in the first year, so as to ensure that the tech startup does not fold before it manages to attract its first round of seed/angel investments.

A fledgling tech ecosystem needs good support from all quarters, and here is where the Dubai International Financial Centre has come to play an important part. Recognising the difficulties faced by early-stage technology companies, the DIFC made a lot of changes to create and accommodate a startup ecosystem in its award-winning onshore financial centre.

What is the DIFC?

The Dubai International Financial Centre, or DIFC, is a leading financial hub in the region for business, fintech, and lifestyle. Setup in 2004, the DIFC has grown to be one of the top 10 onshore financial centres in the world. It brought in a paradigm change in the region, by adopting a Common Law framework, with an independent regulator (DFSA) and an independent English language Common Law judiciary – DIFC Courts.

Since then, the DIFC District has matured into more than just a place to work – it is now a lifestyle destination, with retail outlets, cafes and restaurants, art galleries, residential apartments, public green areas and hotels dotting the landscape.

This episode is also available as a blog post: https://10leaves.ae/publications/blockchain-crypto/setting-up-alternate-trading-system-ats-in-the-difc

What is an Alternative Trading System?

An ATS is a platform that is more loosely regulated than an exchange. It is used to match large orders mainly from institutional clients, and hence work as broker-dealers rather than exchange houses. They are also referred to as Multilateral Trading Facilities in Europe.

The DFSA recognizes two types of ATS platforms – Multilateral Trading Facilities that operate on non-discretionary rules, and Organised Trading Facilities that operate on discretionary rules.

MTF operators allow for trading of a wide variety of equity and non-equity securities, including shares, warrants, options, derivatives, futures, CFDs, fund units and crypto assets. Contracts between buyers and sellers are formed according to a set of transparent rules that do not discriminate between members or their clients (non-discretionary basis).

Can an ATS operator conduct a Security Token Offering (STO)?

Security Tokens can be listed and traded on DFSA-regulated exchanges or Alternate Trading Systems, with both facilities being able to host initial token offerings and secondary trading.

The current admission criteria will also be applied to such Security Tokens, in a way that tokens trading elsewhere will also be tradable in such facilities.

In cases where the ATS is exclusively dedicated to trading only in Security Tokens, it would be labeled a Security Token Market (or Derivative Token Market).

This episode is also available as a blog post: https://10leaves.ae/publications/blockchain-crypto/difc-digital-assets-regime

The Dubai Financial Services Authority (DFSA) recently issued a consultation paper on the regulation of Security Tokens in the DIFC. This paper is one of the two consultation papers that will go on to make the base for the DIFC Digital Assets Regime, thus opening the gateway to a whole new world of exciting and cutting-edge fintech applications using the Distributed Ledger Technology (DLT).

The DFSA then made the relevant amendments to it’s legislation in the end of September, thus creating the framework for the regulation of Security Tokens in the centre.

Part 1 of the DIFC Digital Assets Regime covers Security Tokens. Part 2 is expected to cover Utility Tokens, Exchange Tokens and Stablecoins.

The DIFC Digital Assets Regime will be of interest to issuers of Security Tokens, Authorised Market Institutions that wish to admit Security Tokens to trading, or performing clearing and settlement services, operators of Alternate Trading Systems such as Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF) that wish to trade Security Tokens, providers of Digital Wallets who provide custody and storage services for such tokens, technology providers and in general, any licensed firm that wishes to advise, arrange or manage crypto-assets.

This episode is also available as a blog post: https://10leaves.ae/publications/blockchain-crypto/difc-digital-assets-regime

The Dubai Financial Services Authority (DFSA) recently issued a consultation paper on the regulation of Security Tokens in the DIFC. This paper is one of the two consultation papers that will go on to make the base for the DIFC Digital Assets Regime, thus opening the gateway to a whole new world of exciting and cutting-edge fintech applications using the Distributed Ledger Technology (DLT).

The DFSA then made the relevant amendments to it’s legislation in the end of September, thus creating the framework for the regulation of Security Tokens in the centre.

Part 1 of the DIFC Digital Assets Regime covers Security Tokens. Part 2 is expected to cover Utility Tokens, Exchange Tokens and Stablecoins.

The DIFC Digital Assets Regime will be of interest to issuers of Security Tokens, Authorised Market Institutions that wish to admit Security Tokens to trading, or performing clearing and settlement services, operators of Alternate Trading Systems such as Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF) that wish to trade Security Tokens, providers of Digital Wallets who provide custody and storage services for such tokens, technology providers and in general, any licensed firm that wishes to advise, arrange or manage crypto-assets.

The 10 Leaves Group, one of the region’s leading bespoke consultancies, will now accept crypto payments for their blockchain-related services and solutions.

With this, 10 Leaves becomes the first consultancy of it’s kind in the region to accept cryptocurrency payments, thus opening up their services to a wider audience of pioneers in businesses that work with Distributed Ledger Technology applications.

The UAE’s recent focus on blockchain, coupled with the exciting announcements of DIFC implementing a Digital Assets Regime and DWTC signing up with Binance, is expected to bring in hundreds of startups that operate in the Defi (decentralised finance), DApps (decentralised applications) and NFT (Non Fungible Token) space.

10 Leaves, through it’s technology arm Tenl Technologies, has built up excellent capabilities in these sectors. From fintech advisory, regulatory sandbox consulting to tokenization and legalities of smart contracts, the 10 Leaves Group is poised to advise it’s clients on blockchain-related implementations and regulatory licensing across DIFC, ADGM, DWTC, DMCC, Bahrain and Europe (Luxembourg and Lithuania).

“Dubai has demonstrated it’s vision by focusing on new technologies, and as a consultancy with over 17 years in the business, we aim to complement the leadership’s efforts in supporting entrepreneurs and visionaries who will shape our lives in the years and decades to come”, said Rohit Ghai, Founder of 10 Leaves. “Our crypto-related solutions will help startups and established players in this niche space to navigate nascent and complex regulatory requirements, while staying competitive and compliant.”

“We aim to build an ecosystem of web3-related stakeholders”, added Soumen Ghosh, who has joined the 10 Leaves Group as Partner-Technology. “This includes everyone from early adopters, to startups, tech providers, investors and regulators…to encourage conversations that will lead to contributing towards making the UAE a hub in the blockchain and crypto space.”

The 10 Leaves Group, one of the region’s leading bespoke consultancies, now launches solutions for blockchain and crypto fintechs!

Our journey started with regulatory licensing services in 2005, one year after DIFC launched the first financial centre in the region.

We built up a strong portfolio of clients in traditional finance, and then moved on to advising fintechs in establishing a base in the region and getting regulated.

Today, the 23rdof January, marks a new milestone in our journey. We have become the first consultancy to launch in the metaverse, and with it, bring to the UAE a wide range of blockchain and crypto-related solutions.

The UAE’s recent focus on blockchain, coupled with the exciting announcements of DIFC implementing a Digital Assets Regime and DWTC signing up with Binance, is expected to bring in hundreds of startups that operate in the Defi (decentralised finance), DApps (decentralised applications) and NFT (Non Fungible Token) space.

10 Leaves, through it’s technology arm Tenl Technologies, has built up excellent capabilities in these sectors. From fintech advisory, regulatory sandbox consulting to tokenization and legalities of smart contracts, the 10 Leaves Group is poised to advise it’s clients on blockchain-related implementations and regulatory licensing across DIFC, ADGM, DWTC, DMCC, Bahrain and Europe (Luxembourg and Lithuania).

The blockchain space is new, and ever evolving. These changing paradigms call for a new look dedicated site. Presenting DCENTRAL.AE. Your resource for all things decentralised. And yes, we are on IPFS as well (if you understand what that is!) – and if you know how to “BRAVE” your way there, do have a look at 10leaves.x.

We didn’t stop there. Today, 10 Leaves also becomes the first consultancy of it’s kind in the region to accept cryptocurrency payments, thus opening up their services to a wider audience of pioneers in businesses that work with Distributed Ledger Technology applications.

Dubai has demonstrated it’s vision by focusing on new technologies, and as a consultancy with over seventeen years in the business, we aim to complement the leadership’s efforts in supporting entrepreneurs and visionaries who will shape our lives in the years and decades to come…Our crypto-related solutions will help startups and established players in this niche space to navigate nascent and complex regulatory requirements, while staying competitive and compliant.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-asset-manager-license

Firms engaging in the activity of ‘Asset Management’, can apply to the DFSA for a Cat 3C License. Asset management, in this context, means managing client portfolios on a discretionary basis, under a client mandate.

Firms interested in managing client assets from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

Asset Management activities are discretionary in nature, and can include:

Managing Assets

Managing Assets means managing on a discretionary basis assets belonging to another Person if the assets include any Investment or rights under a contract of Long-Term Insurance, not being a contract of reinsurance.

Arranging Deals in Investments

Arranging Deals in Investments means making arrangements with a view to another Person buying, selling, subscribing for or underwriting an Investment (whether that other Person is acting as principal or agent).

Advising on Financial Products

Advising on Financial Products means giving advice to a Person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor, on the merits of his buying, selling, holding, subscribing for or underwriting a particular financial product (whether as principal or agent).

Arranging Credit and Advising on Credit

Arranging Credit and Advising on Credit means:

(a) making arrangements for another Person, whether as principal or agent, to borrow money by way of a Credit Facility; or

(b) giving advice to a Person in his capacity as a borrower or potential borrower or as agent for a borrower or potential borrower on the merits of his entering into a particular Credit Facility.

The DFSA has a fast-track process for Fund Manager licenses, which also come under Category 3C. The Fund Manager, if approved, can manage domestic (DIFC Public, DIFC Exempt Fund and DIFC Qualified Investor Fund) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.

Firms that wish to engage in non-discretionary investment advice, can opt for a DIFC Investment Advisory License instead. You can read more details here.

The Dubai Financial Services Authority (DFSA) recently issued a consultation paper on the regulation of Security Tokens in the DIFC. This paper is one of the two consultation papers that will go on to make the base for the DIFC Digital Assets Regime, thus opening the gateway to a whole new world of exciting and cutting-edge fintech applications using the Distributed Ledger Technology (DLT).

The DFSA then made the relevant amendments to it’s legislation in the end of September, thus creating the framework for the regulation of Security Tokens in the centre.

Part 1 of the DIFC Digital Assets Regime covers Security Tokens. Part 2 is expected to cover Utility Tokens, Exchange Tokens and Stablecoins.

The DIFC Digital Assets Regime will be of interest to issuers of Security Tokens, Authorised Market Institutions that wish to admit Security Tokens to trading, or performing clearing and settlement services, operators of Alternate Trading Systems such as Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF) that wish to trade Security Tokens, providers of Digital Wallets who provide custody and storage services for such tokens, technology providers and in general, any licensed firm that wishes to advise, arrange or manage crypto-assets.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-innovation-testing-license-dfsa-innovation-testing-license

The Innovation Testing License is a regulatory sandbox offered by the Dubai Financial Services Authority (or DFSA), which is the independent regulator of all financial services companies that seek authorisation or are currently authorised in the DIFC.

The objective of the DFSA ITL is to provide a controlled environment where startups can test innovative products and services. The ITL does not eliminate regulation, rather, it provides a gateway to innovative firms, especially startups, to test their products with live clients.

Part4 of 4

Join us for an engaging discussion with Sameer Sortur, Regional Director, Founder Institute and Sathish Jeyakumar, Founder - Veehive.ai.

We speak on the Blockchain Trilemma, and how to address the relationship between decentralization, scalability and security while designing blockchain models.

You can also watch this episode here.

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 3 of 4

Join us for an engaging discussion with Sameer Sortur, Regional Director, Founder Institute and Sathish Jeyakumar, Founder - Veehive.ai.

We speak on the Blockchain Trilemma, and how to address the relationship between decentralization, scalability and security while designing blockchain models.

You can also watch this episode here.

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 2 of 4

Join us for an engaging discussion with Sameer Sortur, Regional Director, Founder Institute and Sathish Jeyakumar, Founder - Veehive.ai.

We speak on the Blockchain Trilemma, and how to address the relationship between decentralization, scalability and security while designing blockchain models.

You can also watch this episode here.

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 1 of 4

Join us for an engaging discussion with Sameer Sortur, Regional Director, Founder Institute and Sathish Jeyakumar, Founder - Veehive.ai.

We speak on the Blockchain Trilemma, and how to address the relationship between decentralization, scalability and security while designing blockchain models.

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

This episode is also available as a blog post: https://10leaves.ae/publications/difc/vc-fund-marketing-and-distribution

The UAE has three jurisdictions of consequence, when it comes to marketing and promotion of investment funds.

There are two financial free zones – the Dubai International Financial Centre (DIFC), which is regulated by the Dubai Financial Services Authority (DFSA) and the Abu Dhabi Global Market (ADGM), which is regulated by the Financial Services Regulatory Authority (FSRA). The rest of the UAE is considered the mainland and the Securities and Commodities Authority (SCA) is the relevant regulator.

Both the DIFC and the ADGM have domestic fund regimes, and so does the SCA. In addition to this, a vast majority of funds distributed in the UAE are foreign funds, mainly Luxembourg and Cayman-registered funds.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/economics-of-a-vc-fund

Of course, it is about the money!

The economics of venture capital funds differ, based on a variety of factors. The most important one being the expertise and track record of the fund manager, based on the number and quality of the deals that have been closed and exited.

It also depends on the overall fee structure of the fund, with factors such as carried interest and catch up, the preferred return of the investors, management fees and other fund-level fees involved, including offsets, and the portfolio company fees paid to the fund manager on a deal-by-deal basis.

The investment investment purpose and structure of the fund, and general market dynamics also play a part to a large extent.

Although the specific vary, there are some basic elements of the economics of a fund common to all VC funds, including:

Investor capital commitments;
Allocations of profits and losses of the fund;
Applicable distributions;
Fees paid to the fund’s investment advisors; and
Expenses of the fund.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/venture-capital-fund-lifecycle

Venture capital funds typically have long tenures, beginning the first closing and running for 8-10 years. Fund managers usually seek pre-determined extension periods (2-3 years for example) to allow them for a smooth exit from all investments.

Early termination is also possible, based on certain trigger events.

The lifecycle of a venture capital fund comprises:

Fundraising.
Investment period; and
Divestment period.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/vc-fund-structures-in-uae-vc-fund-formation-vehicles

C funds are typically structured as closed-end investment vehicles. The fund’s prospectus permits it to raise capital commitments during a limited period, that usually ranges from 6 to 18 months. The fund then ‘closes’, that is, does not accept any further investor commitments once this period is completed.

Normally, the commitments are not funded all at once, but are ‘called’ in by the fund manager on an ‘as-needed’ basis, so that investments can be made during the ‘investment period’. These are called ‘drawdowns’, and typically done in 3-4 tranches. Drawdowns should also accommodate the fees and expenses of the fund.

Most funds call for at least 25% of the capital commitments during the time of subscription, with further drawdowns being made in a maximum of 3-4 tranches.

In many countries, venture capital funds are formed as Limited Liability Partnerships, with a General Partner managing the investments – akin to a fund manager in an investment company structure. Commonly known as the GP/LP structure, they are advantageous since they are ‘pass-through’ entities for tax purposes and not subject to corporate income tax. In these cases, all income, profits and deductions are taxed once at the investor level only. Also, the liability of Limited Partners is limited to their capital commitments and share of the fund’s assets.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/private-venture-capital-funds

Private funds are collective investment schemes, formed by investment professionals (called fund managers), who seek to raise capital to make multiple investments in a specified industry sector or geographic region.

These funds are marketed to qualified or professional investors – mostly High Net Worth Individuals, family offices and institutions.

Private funds are essentially “blind pools”. Passive qualified investors make commitments to invest a certain amount of capital over time, as per the fund’s commitment schedule, entrusting the fund manager to source, acquire, manage and exit the fund’s investments over a set period of time.

Some VC funds can also be setup to invest on a “deal-by-deal” basis. In these cases, the Fund Manager solicits investments from a pool of potentials, for each specific deal that they source. Multiple investors can invest in multiple deals, and there can be some deals that have no common investors.

Such structures are usually seen in very small VC Funds and can get cumbersome to manage once the number of deals increases.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/vc-fund-formation-in-the-uae-vc-fund-formation-introduction

Venture Capital is a relatively new term in the GCC region. While the past five years have seen accelerated progress, generally speaking, access to alternate sources of capital – be it angel, seed, VC or Private Equity, has proved to be more difficult than in more robust ecosystems such as Silicon Valley or Bengaluru.

Nevertheless, the region has seen an uptick in the number of deals that are being closed across the spectrum, and many players are now entering the smaller end of the market – the sub-US$ 5 million deals.

Taking note of this increased activity, the two financial free zones of the United Arab Emirates – the DIFC and the ADGM, have made carve-outs in their existing regulations to accommodate smaller VC players and give them access to a well-regulated ecosystem, at a lower entry price point.

We at 10 Leaves have been excited about these initiatives and have offered competitive advice and legal assistance to startup fund managers who wish to establish a presence in these financial centers.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-compliance-officer-and-work-from-home-considerations

The concept of working from home (WFH) is not a new. Prior to the pandemic, nearly 40% of businesses in the United States and Europe offered some sort of remote work schedules to employees. However, these schedules were more an incentive, rather than the norm. Once or twice a month was ok, unlike in the post-pandemic world where some functions have been allowed to work from home permanently.

So how does this play out in the United Arab Emirates, especially for financial firms in the DIFC? Does the DFSA have any rules or regulations around work-from-home (WFH)?

The short answer is no. While the DFSA does not have any specific rules on work-from-home, financial firms are expected to comply with the DFSA Rules and the internal rules of the firm. Here is where the compliance function takes the lead.

Today’s technology is advanced enough to enable high-speed audio and video connectivity from anywhere in the UAE. However, a compliance officer must review all WFH arrangements to ensure that the requirements as set in the Compliance Policies and Procedures, as well as Business Continuity, Data Protection and IT and Cyber Security Policies are met and complied with on an ongoing basis.

When employees work from home, they are no longer in a corporate controlled environment that is overseen by managers, team leaders, corporate cameras, and area access controls. So, what should A DIFC Compliance Officer keep in mind for WFH workers?

This episode is also available as a blog post: https://10leaves.ae/publications/difc/compliance-support-services-for-difc-authorised-firms

What are compliance support services?

The Dubai Financial Services Authority (DFSA) is the regulator of DIFC financial service firms. It authorizes and supervises financial entities that conduct activities across five licensed categories.

The DFSA mandates three (and in some cases, four) mandatory appointments for all firms that wish to carry out financial services from the DIFC. The Compliance function is one of them.

Financial firms in the DIFC must appoint a Compliance Officer and a Money Laundering Reporting Officer (CO/MLRO) at the time of application to the DFSA. These functions are usually combined for smaller firms and so one individual can be proposed as the CO/MLRO. The DFSA expects an application from an individual with sufficient knowledge, experience, and seniority to perform the role effectively. Also, the Compliance Officer is expected to be resident in the UAE once licensed.

The Compliance Officer thus forms an integral part of the core team that the DFSA reviews and considers when making a authorisation decision.

The DFSA does allow outsourcing of core functions such as Compliance, MLRO and Finance. However, the DFSA does consider the type of financial service, the projected volume of business, additional endorsements (such as endorsements enabling firms to deal with Retail Clients), and the overall team composition before issuing approvals to outsource these functions.

For Category 4 firms and Restricted Fund Managers, this should normally be a straightforward process.

However, the DFSA does not allow for compliance outsourcing in the case of firms that carry out financial activities with higher risks, such as asset management, brokerage or provision of credit. An in-house resource must be hired in these cases. However, as seen above, in-house compliance functions can have some drawbacks, and here is where compliance support services can help bridge gaps.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-compliance-services-outsourcing-benefits

What are the benefits of outsourcing the compliance function? The comparison between in-house and outsourced compliance options follows the same reasoning as for any outsourcing option. Here are some factors that can help you decide.

Cost:

The cost of hiring a full-time compliance officer in the DIFC can be high, especially for startup financial firms. Salaries range upwards of US$ 8,500 per month for a suitably qualified compliance officer, who has been previously licensed by the DFSA. Other direct costs include medical benefits, DEWS (end-of-service) registrations, and visa costs. Also add to that the costs of recruiting and the delay in joining due to notice periods from previous companies. Outsourcing, on the other hand, entails a fixed and lumpsum monthly fee, that is easy to budget for and manage. These costs increase as the firm grows, and at some point it will become more advantageous to hire someone in-house. In our experience, we have seen this to be at least 2-3 years for firms that clock an above-average rate of growth.

Another key factor of consideration is investment in tools that they Compliance Officer requires to discharge his/her duties. Financial services firms must continuously invest in new technologies and infrastructure to address evolving compliance needs. These costs are not borne by the firm in case of outsourcing the function.

Availability of talent:

One of the main reasons for outsourcing the compliance function in the DIFC is a lack of locally available resources. The supply of compliance specialists is small relative to the demand in the market.

Listen to know more!

This episode is also available as a blog post: https://10leaves.ae/publications/difc/outsourcing-compliance-services-in-difc

Does the DFSA allow compliance outsourcing?

Yes, the DFSA does allow outsourcing of core functions such as Compliance, MLRO and Finance. However, the DFSA does consider the type of financial service, the projected volume of business, additional endorsements (such as endorsements enabling firms to deal with Retail Clients), and the overall team composition before issuing approvals to outsource these functions.

For Category 4 firms and Restricted Fund Managers, this should normally be a straightforward process. You can read more about the benefits of compliance outsourcing here.

For higher categories, especially for Asset Managers and Brokerage houses, outsourcing may not be an option. In these cases, we recommend that the firm opt for our compliance support services.

Do I hire a compliance officer before, or after authorisations?

Firms that apply for authorisation to the DFSA have to, at the time of application, identify the individuals that will carry out the Authorised Functions, including Compliance and Money-Laundering Reporting. While these individuals do not have to be employed by the firm yet, it would be unusual for a compliance officer to commit to carrying out the function while being in employment with another firm. In such cases, the compliance officer would usually resign from their current employment, and come on board the new firm once it is authorised.

However, in many instances, the authorisation process itself can take 4-6 months or even more. Hence the applicant firm can also request to make the identification of the compliance officer an In-Principle condition.

The third, and most-often opted for route is to outsource the compliance function. Here, the compliance outsourcing provider would second a competent (and mostly already authorised) individual to act as the Compliance and Money Laundering Reporting Officer at the time of application itself, thus speeding up the process.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-compliance

How important is the compliance function?

The Dubai Financial Services Authority (DFSA) is the regulator of DIFC financial service firms. It authorizes and supervises financial entities that conduct activities across five licensed categories.

The DFSA mandates three (and in some cases, four) mandatory appointments for all firms that wish to carry out financial services from the DIFC. The Compliance function is one of them.

The DIFC is a well-regulated jurisdiction and hence the Compliance function is critical to the authorisation and ongoing operation of all financial firms registered in the centre. The DFSA places a lot of emphasis on Compliance with it’s extensive rules and regulations, including Conduct of Business, Prudential, Investment and Data Protection Rules. A licensed firm is expected to develop and maintain a culture of compliance, starting with the senior management and across all employees and stakeholders.

The repercussions of non-compliance can be severe, ranging from financial penalties to loss of reputation and even closing of the business. While compliance does not generate revenues for the firm, it forms the cornerstone of a successful financial business. In fact, robust compliance processes can result in increased efficiencies and lead to indirect revenue-generation for the firm.

Financial firms in the DIFC must appoint a Compliance Officer and a Money Laundering Reporting Officer (CO/MLRO) at the time of application to the DFSA. These functions are usually combined for smaller firms and so one individual can be proposed as the CO/MLRO. The DFSA expects an application from an individual with sufficient knowledge, experience, and seniority to perform the role effectively. Also, the Compliance Officer is expected to be resident in the UAE once licensed.

The Compliance Officer thus forms an integral part of the core team that the DFSA reviews and considers when making a authorisation decision.

Part 5 of 5

Join us for an engaging discussion with Derek Watson from N2 Technology, and Bishr Shiblaq, LLM, CIFD.

We speak on being investment-ready and preparing for the due-diligence questions that investors usually ask.

Also featured is a panel discussion with Egor Romanyuk, an early-stage investor, in which he speaks about how he decides which startups to invest in.

For startups, and VCs, and everything in between!

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 4 of 5

Join us for an engaging discussion with Derek Watson from N2 Technology, and Bishr Shiblaq, LLM, CIFD.

We speak on being investment-ready and preparing for the due-diligence questions that investors usually ask.

Also featured is a panel discussion with Egor Romanyuk, an early-stage investor, in which he speaks about how he decides which startups to invest in.

For startups, and VCs, and everything in between!

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 3 of 5

Join us for an engaging discussion with Derek Watson from N2 Technology, and Bishr Shiblaq, LLM, CIFD.

We speak on being investment-ready and preparing for the due-diligence questions that investors usually ask.

Also featured is a panel discussion with Egor Romanyuk, an early-stage investor, in which he speaks about how he decides which startups to invest in.

For startups, and VCs, and everything in between!

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 2 of 5

Join us for an engaging discussion with Derek Watson from N2 Technology, and Bishr Shiblaq, LLM, CIFD.

We speak on being investment-ready and preparing for the due-diligence questions that investors usually ask.

Also featured is a panel discussion with Egor Romanyuk, an early-stage investor, in which he speaks about how he decides which startups to invest in.

For startups, and VCs, and everything in between!

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 1 of 5

Join us for an engaging discussion with Derek Watson from N2 Technology, and Bishr Shiblaq, LLM, CIFD.

We speak on being investment-ready and preparing for the due-diligence questions that investors usually ask.

Also featured is a panel discussion with Egor Romanyuk, an early-stage investor, in which he speaks about how he decides which startups to invest in.

For startups, and VCs, and everything in between!

Read up more on DIFC Innovation Licenses, and get in touch to be part of the UAE’s premium tech ecosystem.

For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349 or Visit us at: https://10leaves.ae/ or chat with us!

Part 4 of 4

You can also view this episode on You Tube - https://youtu.be/PKSwMsWVzt4

Join me for an engaging discussion with Bishr Shiblaq, LLM, CIFD and Derek Watson from the pioneering N2 Technology on setting up in the DIFC Innovation Hub and being part of an ecosystem that does so much more than just provide a license and a fantastic place to do business...

For startups, and VCs, and everything in between! For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349

Do also tune in to our podcasts on the DIFC Innovation License and the DIFC VC Fund Manager Regime. Happy listening!

Part 3 of 4

You can also view this episode on You Tube - https://youtu.be/PKSwMsWVzt4

Join me for an engaging discussion with Bishr Shiblaq, LLM, CIFD and Derek Watson from the pioneering N2 Technology on setting up in the DIFC Innovation Hub and being part of an ecosystem that does so much more than just provide a license and a fantastic place to do business...

For startups, and VCs, and everything in between! For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349

Do also tune in to our podcasts on the DIFC Innovation License and the DIFC VC Fund Manager Regime. Happy listening!

Part 2 of 4

You can also view this episode on You Tube - https://youtu.be/PKSwMsWVzt4

Join me for an engaging discussion with Bishr Shiblaq, LLM, CIFD and Derek Watson from the pioneering N2 Technology on setting up in the DIFC Innovation Hub and being part of an ecosystem that does so much more than just provide a license and a fantastic place to do business...

For startups, and VCs, and everything in between! For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349

Do also tune in to our podcasts on the DIFC Innovation License and the DIFC VC Fund Manager Regime. Happy listening!

Part 1 of 4

You can also view this episode on You Tube - https://youtu.be/PKSwMsWVzt4

Join me for an engaging discussion with Bishr Shiblaq, LLM, CIFD and Derek Watson from the pioneering N2 Technology on setting up in the DIFC Innovation Hub and being part of an ecosystem that does so much more than just provide a license and a fantastic place to do business...

For startups, and VCs, and everything in between! For More Details, Mail us at: connect@10leaves.ae or Call us at: +97142778349

Do also tune in to our podcasts on the DIFC Innovation License and the DIFC VC Fund Manager Regime. Happy listening!

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-digital-investment-management-robo-advisory-license

The DIFC has provisions for both regulated and non-regulated fintech in the Innovation Hub. While they have issued detailed guidelines on Money Services Businesses, there is no such explicit guidance on Robo Advisory licenses.

What are Robo-Advisors?

Robo-advisors are a class of financial adviser that provide financial advice or Investment management online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms, and use technology to interact with more tech-savvy clients, as opposed to the traditional method of relationship-based advisory. This technology allows investment managers to provide tailored investment management services to clients in a cost-effective and scalable manner.

Why Use a Robo-Advisor?

There are many reasons why investors may choose to use robo-advisors as opposed to a traditional portfolio manager or financial advisor including:

Low fees and no conflict of interest: Many Digital Investment Managers charge significantly lower fees compared to traditional financial advisors. Conflicts of interest are minimized, since there is no bias or pressure to push a certain set of products or solutions.

Low minimum requirements: Most financial advisory firms have higher requirements of initial commitments – usually a minimum in excess of US$ 100,000. Robo advisors have much lower entry requirements (some as low as US$ 1,000) and work on volumes.

Availability: Digital Investment Managers are automated and hence available 24/7.

Prominent robo-advisory firms include https://www.betterment.com, https://www.personalcapital.com, and https://intelligent.schwab.com.

The Dubai Financial Services Authority, or DFSA, reviews applications from firms who wish to carry out financial services from the DIFC.

In the absence of explicit guidance, based on our experience with DIFC Robo-advisory applications, the following activities may be applicable, depending on the business model, whether fully-digital, or hybrid.

Firms that sell white-labeled technology solutions to wealth managers are not covered since they do not require financial services permissions.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/adgm-spvs-as-holding-companies

Why hold assets in an ADGM SPV? What are the benefits and uses?

Flexibility of ownership

Shareholding in operational companies:

Holding shares in operational companies in the name of an SPV, instead of in individual names, helps better manage business-related liabilities, and also provide for potential investments in the business. The UAE mainland, for instance, has a 51%/49% share structure for trading entities. These shares are usually held in individual names.

Holding these shares in the name of ADGM SPVs can provide many benefits, including more robust arrangements, under Common Law, for the relationship between the UAE National and the expatriate partners.

Can ADGM SPVs hold property?

Yes! Investors who wish to purchase property, or have already purchased property, can use ADGM SPVs to hold these assets.

We have seen investors using one SPV per property, primarily when such assets are bought for onward sale. Others use ADGM SPVs to consolidate their portfolios by region (in this case, by Emirate), or by type of property (residential, commercial) etc.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/adgm-spvs-as-securitisation-vehicles

What are the benefits of setting up a securitisation vehicle in the ADGM?

In the ADGM, securitisation of a wide range of assets, loans, bonds, incomes and risks is allowed. In addition to this, risks related to debt, movable or immovable property, tangible and intangible assets are also allowed to be securitised.

In general, anything that is a store of future income can be securitised in the ADGM.

The ADGM SPV is governed by Common Law, and it’s direct applicability in the ADGM provides legal certainty and comfort to foreign investors. SPVs also have access to the ADGM Courts, which provides a mechanism for registration and enforcement of contracts, again under Common Law.

There are no restrictions on foreign ownership in the ADGM, and so ADGM SPVs can issue 100% of it’s securities and shares to foreign nationals.

The ADGM SPV is a low-cost and flexible vehicle. There are no office-space requirements (the services of an ADGM registered agent would suffice), and multiple classes of shares are allowed.

Also, an ADGM SPV has access to the extensive Double Taxation Avoidance Treaty Network that the UAE has in place with most major countries around the globe. In this case, there are additional requirements to fulfil from the Ministry of Finance.

The ADGM is a zero-tax jurisdiction and there are no corporate, withholding or income taxes in the centre. 100% of the profits of an ADGM SPV can be repatriated.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/corporate-governance-for-adgm-spvs

Companies established in the Abu Dhabi Global Market are expected to implement and maintain a robust corporate governance framework. These include annual filings, event-driven filings, beneficial ownership controls, and conformance to the Economic Substance regulations that have been implemented all across the UAE.

Basic corporate governance:

At a minimum, corporate governance involves compliance with the rules that are applicable to an SPV, both externally from the ADGM, and internally (Memorandum and Articles of Association) as well. Well-documented corporate governance processes, coupled with adherence to recommended best-practices, allows for the SPVs management to maintain a good relationship with internal and external stakeholders.

This is even more relevant to startups, that seek funding at various stages of their business. Investors give high importance to detailed and customized Articles of Associations, backed by robust secretarial policies, both of which are important when it comes to special purpose vehicles that act as holding companies for these startup entities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-providing-money-services-business-licenses-in-the-difc

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Arranging or Advising on Money Service actives come under a Category 4 license, with a minimum base capital of US$ 10,000.

Money Transmission Services also come under a Category 4 license, with a minimum base capital of US$ 140,000.

Providing or Operating a Payment Account, executing Payment Transactions or Issuing Payment Instruments form the core of a Category 3D license, with a minimum base capital of US$ 200,000.

Issuing Stored Value, in which a firm can issue payment cards to make payments to third-party providers, comes under a Category 3C license, with a minimum base capital of US$ 500,000.

Due to the higher risks associated with these activities, the DFSA places higher entry-level requirements and restrictions on the license itself.

Chances are that the first point of entry be through the DFSA Innovation Testing License, rather than a full-scale application. This is however, decided on a case-to-case basis.

You can also setup in the D I F C with a D I F C Innovation License, which is for non-regulated technology startups.

Such a license encourages startups to establish a presence in the region, employ staff and prepare for regulation by then applying to the DFSA for regulatory approvals.

You cannot however, carry out regulated activities until a Financial Services Permission has been obtained.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/luxembourg-limited-partnership

What is a Luxembourg Limited Partnership? Limited partnerships are fund types that usually have illiquid strategies. They have been modelled on partnerships that can be setup in other jurisdictions such as United States, United Kingdom and the Cayman Islands.

Such funds invest into venture capital/private equity, debt markets or real estate. The AIFMD introduced in 2013 was instrumental in helping Luxembourg become a leading jurisdiction for funds that invest in alternative assets.

The partnership comprises a General Partner (LP), usually a SARL, and Limited Partners who are investors. This arrangement is governed by the Limited Partnership Agreement, or LPA. A Luxembourg Limited Partnership is not subject to any asset diversification requirements, nor any specific asset type.

Types of Luxembourg Limited Partnerships: There are three types of Limited Partnerships. The first is a Partnership Limited by Shares, or SCA. Structurally, the SCA is like a Public Limited Company.

The second is the Common Limited Partnership, commonly known as SCS or CLP. And the third, and most frequently used is the Special Limited Partnership, or SLP.

An SCA and a CLP have a legal personality, unlike an SLP. Other notable differences between an SCA and the CLP/SLP strutures is that the latter can be formed in front of a notary or by private deed, and typically governed by the Limited Partnership Agreement, unlike the SCA which comes under Company Law.

Also, the SCA is subject to taxation (but has access to double-taxation avoidance treaties), while the CLP and SLP are tax-passthrough structures.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/new-adgm-company-service-provider-regime

The Abu Dhabi Global Market (ADGM) has been open for business only since October 2015, but it has already garnered much praise and respect over its efforts to differentiate itself through unique offerings. It pioneered the FinTech Abu Dhabi summit, attended by over five hundred global Financial Technology (FinTech) personalities; and has launched a series of collaborations with different companies such as Temenos, Al Ansari, and Mastercard to help forward its FinTech initiative.

Other such initiatives include the Special Purpose Vehicles (SPV) regime, and the ADGM Foundations regime.

The SPV regime is open to a wide variety of uses, from investor-friendly holding structures, to asset separation and transfer. Foundations provide a mechanism to consolidate holdings of various assets (shares, real property, intellectual property, royalties, etc.) into a single holding entity. This allows for clarity on the transfer of assets during a succession process.

Offering world-class structures was the first step. The ADGM has now taken another significant step in the right direction, with the introduction of the Company Service Provider Framework.

This framework aims to regulate existing corporate service providers, such as 10 Leaves, and addresses certain challenges of administering ADGM SPVs and Foundations, especially those that do not have a significant nexus to the UAE.

The ADGM Company Service Provider will be the point of contact between the ADGM Registration Authority and the SPV.

The ADGM Company Service Provider Regulations come into effect in April 2021.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/holding-intellectual-property-using-adgm-spv

Identification, protection and exploitation of IP Identifying valuable IP is a process in itself. Both management and staff have to perform this exercise on a consistent basis, especially in edutech enterprises. Multi-jurisdictional firms may face an additional challenge in coordinating their IP identification efforts.

IP, once identified, should be protected. This exercise is detailed, and involves a thorough analysis of the current jurisdictions where the organisation operates, the associated costs and the risks involved in not moving fast enough. Some jurisdictions, such as the European Union, allow for a single application process; most others have to be done individually. IP protection costs in the GCC are high (approximate US$ 4,300 per country), and there is no unified system for IP protection, which means that startups often face the dilemma of deciding when to go ahead with registering the IP.

Once protected, the IP has to be exploited. Here again, multiple mechanisms exist, from internal IP licensing, to third-party licensing for production in the name of the licensor. In case of some activities, such as services, extensive agreements covering IP licensing and payment of royalties have to be put in place.

We had a client operating in three jurisdictions with sales in fifteen others. Each operational jurisdiction had one piece of IP that was cross-licensed to the others and sold in all 15, thus having a potentially 500 transactions to record in its accounts and contracts management database. Then there are tax and transfer-pricing considerations to add to the mix.

Using an ADGM SPV to hold IP Using an ADGM SPV to hold Intellectual Property has multiple benefits, including:

Streamlining of internal processes for inter-group licensing
Simpler IP-licensing processes
Consolidation of multi-jurisdictional IPs under one entity
Separation of IP from the operational company, thus protecting the IP from operational liabilities
Ability to claim tax relief under DTAAs signed with the UAE (provided that economic substance is maintained)
Mechanism to support standalone IP valuation

The ADGM SPV can be structured in a manner where the Intellectual Property is assigned to it using IP Assignment Agreements, and the SPV can then sub-assign this Intellectual Property to subsidiaries/other entities in the UAE and worldwide. The royalties thus derived can be consolidated in the SPV, thus leading to operational and tax efficiencies.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/adgm-issues-digital-investment-management-license-10-leaves

Robo-advisors are a class of financial adviser that provide financial advice or Investment management online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms, and use technology to interact with more tech-savvy clients, as opposed to the traditional method of relationship-based advisory. This technology allows investment managers to provide tailored investment management services to clients in a cost-effective and scalable manner.

Why Use a Robo-Advisor?

There are many reasons why investors may choose to use robo-advisors as opposed to a traditional portfolio manager or financial advisor including:

Low fees and no conflict of interest: Many Digital Investment Managers charge significantly lower fees compared to traditional financial advisors. Conflicts of interest are minimized, since there is no bias or pressure to push a certain set of products or solutions.

Low minimum requirements: Most financial advisory firms have higher requirements of initial commitments – usually a minimum in excess of US$ 100,000. Robo advisors have much lower entry requirements (some as low as US$ 1,000) and work on volumes.

Availability: Digital Investment Managers are automated and hence available 24/7.

Prominent robo-advisory firms include https://www.betterment.com, https://www.personalcapital.com, and https://intelligent.schwab.com.

The Financial Services Regulatory Authority, or FSRA, reviews applications from firms who wish to carry out financial services from the ADGM. Their guidance for Digital Investment Managers includes those operating on fully-digital models, and hybrid models. Firms that sell white-labeled technology solutions to wealth managers are not covered since they do not require financial services permissions.

ADGM Applicable Activities The following regulated activities will be applicable: 1. Advising on Investments or Credit – firms issuing recommendations on portfolios of financial instruments 2. Arranging Deals in Investments – firms issuing recommendations and passing instructions to brokers (with client consent) 3. Managing Assets – firms engaging in discretionary management of client portfolios, including discretionary portfolio rebalancing.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/using-adgm-spvs-as-holding-structures-for-startups

So how can we use these flexible structures as holding companies for startups?

Well, Startups in the region face a daunting task. It is not easy to operate a fledgling company in the region, even with all the incentives that are currently in place for entrepreneurs.

Access to capital is limited, given that banks in the UAE do not lend easily to entities that do not have a proven track record.

Startups then end up having to turn to alternate sources of funding, namely angel investors and venture capitalists.

This ecosystem has been steadily growing since 2016, and initiatives such as the DIFC VC Fund Regime are bringing in new VC Fund managers to the country.

Most free zones do not yet have very flexible commercial companies regulations. Shareholders are all clubbed into one class of shares, with limited (if any) options to customize the Memorandum and Articles of the company, and options for share pledges and issuance of convertibles such as warrants being virtually non-existent.

In this situation, even if startups manage to access capital, they require an adequate structure so as to onboard investors, while still keeping control of the operational direction of their company.

Here is where ADGM SPVs provide a viable alternative:

Startups can be setup in any free zone in the UAE, and can hold the shares in these free zone entities through an ADGM SPV.

In effect, the operational entity becomes a wholly-owned subsidiary of the SPV in ADGM. The Memorandum of the SPV can be customized to allow for multiple classes of shares, with different voting, dividend and distribution rights.

Investors can be onboarded in a separate class of shares and founders can maintain control of operational aspects of the startup through a distinct founder share class.

This is a podcast-only feature!

Startups seeking financing often turn to venture capital firms. These firms can provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more.

However, venture capital financings are not easy to obtain or close. Entrepreneurs will be better prepared to obtain venture capital financing if they understand the process, the anticipated deal terms, and the potential issues that will arise.

We have a detailed look at VC financing in a series of three podcasts.

This is the last part in the series.

Also have a listen to our podcast on Innovation Licenses in the Dubai International Financial Centre, or D I F C. You can have your own tech startup too!!

This is a podcast-only feature!

Venture investors will want to make sure that the founders have incentives to stay and grow the company.

If the founders’ stock is not already subject to a vesting schedule, the venture investors will likely request that the founders’ shares become subject to vesting based on continued employment, and then become “earned”.

Standard vesting for employees is monthly vesting over a 48-month period, with the first 12 months of vesting delayed until 12 months of service are completed, but founders can often negotiate better vesting terms.

The key issues that the founders negotiate in this regard are the following.

Will the founders get vesting credit for time already served with the company?

Will vesting be required for shares they acquired for meaningful cash investment?

Should a vesting schedule of less than 48 months apply?

Should a vesting schedule apply at all?

Should vesting accelerate, in whole or in part, on termination of employment without cause, or upon a sale of the company?

A form of vesting that is usually acceptable to investors is the so-called “double trigger” acceleration, where vesting accelerates if the company is acquired and if the buyer terminates the founder’s employment without cause after the acquisition.

In our experience, some vesting in early-stage startups is typically required, but the founders will usually get credit for time spent with the company, as long as a meaningful amount of equity is still subject to vesting.

Also have a listen to our podcast on Innovation Licenses in the Dubai International Financial Centre, or D I F C. You can have your own tech startup too!!

This is a podcast-only feature!

Startups seeking financing often turn to venture capital firms. These firms can provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more.

However, venture capital financings are not easy to obtain or close. Entrepreneurs will be better prepared to obtain venture capital financing if they understand the process, the anticipated deal terms, and the potential issues that will arise.

In this podcast, we provide an overview of venture capital financings.

Actually, in a series of three podcasts.

Lets start by having an overview of Venture Capital Financing.

Also have a listen to our podcast on Innovation Licenses in the Dubai International Financial Centre, or D I F C. You can have your own tech startup too!!

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/special-purpose-acquisition-company-spac-options-in-luxembourg

What are Special Purpose Acquisition Companies, or SPACs?

A SPAC is an acquisition vehicle typically created by experts in specific sectors, for example, in technology.

The primary objective of an S PAC is to acquire an existing entity that is in the early stages of filing for an Initial Public Offering, or IPO.

The acquisition is funded by the capital that the S PAC raises from it’s own Initial Public Offering. This capital is then kept in escrow until the target company has been identified. Once done, the process can be completed quickly, hence giving the target entity a quicker and hassle-free route to an IPO.

If an SPAC fails to locate an acquisition, it would have to be liquidated.

The advantage to investors is that they get to seize opportunities quickly, within the protection of a listed entity with all the required adherence to regulation and transparency.

The advantage for the target company is that they get to list quickly, through the merger process.

Because of the nature of it’s operation, S PACs are often called “blank-cheque” companies.

Why establish an SPAC in Luxembourg?

Luxembourg offers many solutions to establish S PACs. The country is a leading jurisdiction for setting up of investment funds and holding companies.

In fact, Luxembourg is the second-largest fund domicile in the world, and the largest in Europe, managing over EUR 5.1 trillion dollars.

Funds setup in Luxembourg can be distributed through the European Union, under the AIFM directive.

A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/green-funds-and-sustainable-finance-options-in-luxembourg

What are social impact funds?

Social impact and green funds are investment funds that have integrated environmental, social and governance factors (ESG) into their investment process. These ESG funds invest into businesses that are environmentally friendly and have a positive impact in society.

The sustainable and impact investing asset class has recently emerged as a new and growing class of investments. There are different forms of investing to create a social impact, and these include environmentally friendly businesses such as solar or wind energy, start-ups with an ESG agenda or investments in a blue-chip company that largely fulfils ESG criteria.

This sector has seen a considerable growth, as institutional investors and sovereign wealth funds have been under increasing pressure by governments worldwide, to integrate ESG criteria into their investment allocations.

Why set up an ESG fund in Luxembourg?

Luxembourg has been at the forefront of social impact investing and has a long-established track record as a domicile of choice for ESG funds. Luxembourg is also ideally positioned for fund managers to make use of the European passporting rights to distribute the fund across the EU, and also to other markets worldwide. Also, most globally-recognised service providers have a presence and offer services in Luxembourg.

In fact, Luxembourg has a documented strategy for growing the impact investing sector, and this includes focus on leveraging Luxembourg’s expertise in asset management, alternative funds and sustainable finance. As a result, the country has seen a total market share of over 30% of all social impact investment funds in Europe, over 62% of European impact funds, over 65% of global microfinance assets, as well as being amongst the top four jurisdictions globally, for Islamic funds.

The Luxembourg Government, the Luxembourg Stock Exchange and the European Investment Bank have together established LuxFlag, an independent association for the labeling of funds that invest in the ESG sector.

This episode is a podcast-only feature!

Do also visit us at https://10leaves.ae/publications/difc/new-difc-venture-capital-funds-regime

Why setup a Venture Capital Fund in the DIFC? The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of Public, Exempt and Qualified Investor Funds. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/cost-of-setting-up-a-holding-company-in-the-adgm

Consolidation and management of assets is one of the key points of concern for investors worldwide, and even more so in the GCC. A growing investor ecosystem, coupled with the high density of family wealth in the region, call for robust structures that can help high net worth individuals manage their investments. One such structure is an ADGM holding company. This article contains details for an operational holding company, that is, a holding company that actively manages the assets under it. This holding company is eligible for visas and hence can employ staff to carry out their operations.

For a passive holding company, where the objective is to hold shares, Intellectual Property or Real Property, you can read our article on Special Purpose Vehicles in the ADGM.

Why setup a holding company in the ADGM?

The ADGM is an upcoming financial center in the region for business and fintech. ADGM holding companies can be used to hold assets within the UAE, the GCC, or anywhere else in the world. These include real property and shares in other companies in the UAE and worldwide.

The maximum number of visas you can apply for will depend on both the type of business you plan on setting up as well as the size of the premises you lease in the ADGM.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/guide-to-the-adgm-category-3c-fund-manager-license

ADGM Fund Manager License: Firms interested in managing funds from the ADGM are required to submit applications to the Financial Services Regulatory Authority, or FSRA.

The FSRA has a fast-track process for Fund Manager licenses, which come under Category 3C. The Fund Manager, if approved, can manage domestic professional (Exempt and Qualified Investor Funds) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.

Exempt Funds:

Exempt Funds are open only to Professional Clients (as defined by the ADGM). The other features of an EF are:

Minimum subscription of US$ 50,000; and
Units are offered to persons only by way of a Private Placement.

Qualified Investor Funds:

Qualified Investor Funds are open only to Professional Clients (as defined by the ADGM). The other features of a QIF are:

Minimum subscription of US$ 500,000; and
Units are offered to persons only by way of Private Placement.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-licensing-categories

DIFC Licensing categories Firms interested in carrying out financial services from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The type of business that the applicant wishes to engage in defines the category of Licence that is required. For example, a firm undertaking low-risk activities such as advising or arranging will require a DIFC Category 4 Licence, while a discretionary portfolio manager will require a DIFC Category 3C Licence. An STP broker, dealing on a matched principle basis will require a DIFC Category 3A Licence, whereas a market maker or provider of credit provider will require a DIFC Category 2 Licence. Full-fledged banks, that accept deposits, will come under a DIFC Category 1 License.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-crowdfunding-business-license

Firms interested in carrying out crowdfunding activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises the crowdfunding business as a Category 4 entity, with the primary activity of “Operating a Crowdfunding Platform”. The base capital required for a DIFC Crowdfunding license is US$ 140,000.

The DFSA offers three types of crowdfunding licenses:

a. Investment-based Crowdfunding Platform

b. Loan-based Crowdfunding Platform

c. Property-based Crowdfunding Platform

DIFC Crowdfunding Platforms are able to cater to retail clients, with certain additional requirements to ensure retail client protection. For instance, retail investors will only be allowed to invest upto US$ 50,000 in a single calendar year.

Due to the nature of the license, and the recent issuance of crowdfunding regulations, the DFSA places slightly higher entry-level requirements and restrictions on the license itself.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/hedge-funds-in-luxembourg

Luxembourg funds and the GCC

Luxembourg is a jurisdiction of choice for investors based in the GCC. While the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM)also offer fund structures, Luxembourg funds have more diverse options, including SLPs – that can be unsupervised and allow for greater flexibility for lower AUMs.

Luxembourg is an excellent jurisdiction for startup funds due to lower setup and maintenance costs, in some cases, as low as 35% of the costs in similar onshore jurisdictions in the GCC. They can be established quickly, are more flexible and can easily be upgraded to supervised or passportable funds once higher AUMs are achieved.

Luxembourg funds can also be managed from the DIFC (and ADGM), by setting up a restricted fund manager. This allows for greater comfort to prospective investors, besides opening an option for directly marketing and passporting the fund within the UAE.

Most large banks and investment managers in the UAE and the GCC have Luxembourg fund options. In fact, Luxembourg domiciled investment funds dominate among foreign funds sold in the GCC.

United Arab Emirates – 64% of foreign funds are Luxembourg funds

Saudi Arabia – 50%

Kuwait – 75%

Bahrain – 75%

Oman – 99%

Qatar – 98%

What is a hedge fund?

Hedge funds got their name from investors in funds holding both long and short positions, to ensure that they made a profit despite market fluctuations. This practice is called hedging.

Hedge funds have moved onto many different kinds of structures with different assets and securities, and nowadays mean that the fund manager uses a combination of complex investment strategies and leverage to aim for higher returns. Contrast that to a equity fund or a property fund, which, as the name suggests, invests in listed equities or property assets.

As the first money manager to combine short selling, the use of leverage shared risk through a partnership with other investors and a compensation system based on investment performance, Alfred Winslow Jones earned his place in investing history as the father of the hedge fund.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/debt-funds-in-luxembourg

Why set up a debt fund in Luxembourg?

Luxembourg is a leading jurisdiction for investment funds and the second largest investment fund centre in the world after the United States. It is the largest fund jurisdiction in the European Union, with more than Euro five trillion of assets under management.

The country is a politically and financially stable EU country with a AAA-Rating. As a jurisdiction within the European Union, debt funds established in Luxembourg can be more easily distributed within the EU on the basis of existing passporting rights for EU funds.

What are the key advantages of setting up debt funds in Luxembourg?

The first big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, hedge funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).
A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.
Distribution options are the next major advantage. A Luxembourg fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.

(i.)Then there are the tax benefits.

a.There is a choice of tax treatment according to the choice of investment vehicle. Debt funds can be fully taxable and have access to Luxembourg’s double tax avoidance treaties network, or can choose to be tax exempt, but with very limited access to double tax treaties.

b. Debt funds can also be tax neutral with either legal or no legal personality. In this event, the partners of the fund will become taxable, and not the debt fund itself.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/adgm-foundations-regime

ADGM Foundations Regime provides a viable alternative to trusts for legacy planning and financial structuring. ADGM offers foundations incorporated under Common-Law for the first time in the region.

What are Foundations? A foundation is governed by its Charter, which is a publicly available document, and By-laws, which are private to the Foundation. The affairs of an ADGM Foundation are managed by the members of a Council and may be supervised by a Guardian.

Foundations provide a mechanism to consolidate holdings of various assets (shares, real property, intellectual property, royalties, etc.) into a single holding entity. This allows for clarity on the transfer of assets during a succession process.

Foundations operate like common law trusts, with an important distinction – they are legally incorporated with a distinct legal personality. In effect, they have features common to a company. They can hold assets, but cannot issue shares or carry out commercial activities.

Foundations are operationally and tax-efficient. Much like a ‘Letter of Wishes” in a trust vehicle, a Foundation’s Charter and By-Laws help make the succession process much less challenging.

Have you got bored listening to lengthy podcasts, that don’t seem to reach any conclusion, before at least 30 minutes have passed??

This, is not one of them.

Presenting

10 Leaves Podcasts

You have enjoyed our engaging videos, that give you precise information, in under two minutes

You have seen, referred to, and appreciated our website, which is considered the most informative in the business.

Now,

Listen to it!!

Informative podcasts, all under 12 minutes.

Covering all aspects of doing business in the D I F C, ADGM, and Luxembourg.

Tune in, and happy listening!

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/fund-of-funds-in-luxembourg

What is a fund of funds?

A fund of funds, or FoF, is a fund that invests into other funds. The FoF does not invest directly in underlying assets such as securities, bonds or real estate. Instead, it invests into portfolios of other funds. In some jurisdictions, FoFs are also referred to as as multi-manager funds.

FoFs can be focused on various sectors, such as hedge strategies, private equity, bonds and fixed income, and real estate, to state a few.

What are the advantages of setting up multi-manager funds?

Multi-manager funds offer the advantage of a diversified pool of investments that is managed by different fund managers.

In many cases, retail investors do not have access to funds that have high subscription costs and lack distribution channels. FoFs can provide such investors access to these funds.

An additional benefit is the risk spread. Investing in portfolios of different fund managers provides the investors an additional layer of security. Also, the FoF can be structured in a way that leads to the diversification of sectors and geographies, thus reducing the overall risk exposure.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/sicav-in-luxembourg

Why set up a SICAV in Luxembourg?

Luxembourg is a leading jurisdiction for investment funds and the second largest investment fund centre in the world after the United States. It is the largest fund jurisdiction in the European Union, with more than Euro five trillion of assets under management.

A big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, hedge funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).

A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.

The country is a politically and financially stable EU country with a AAA-Rating. As a jurisdiction within the European Union, funds established in Luxembourg can be more easily distributed within the EU on the basis of existing passporting rights for EU funds.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/setting-up-an-umbrella-fund-in-luxembourg

What is an umbrella fund?

An umbrella fund is collective investment scheme that legally exists as a single entity but has several distinct compartments or sub-funds. These sub-funds may follow completely different investment policies and can have different investors for each compartment. Such sub-funds are treated as separate funds, with assets and liabilities being segregated and fund accounting also being done separately.

Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.

Luxembourg also has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.

What are the advantages of setting up an umbrella fund in Luxembourg?

Luxembourg offers many advantages for the establishment of umbrella funds:

The first one being time-to-market.

Setting up an umbrella fund is a one-time process, with an incremental sub-procedure for each compartment.

a. The fund manager does not have to go through a separate setup process, nor re-negotiate terms with service providers, every single time.

Costs also play a big part here. An umbrella fund with multiple compartments costs much lesser than setting up distinct funds, especially for fund managers who wish to employee various strategies for specific investor groups.
The third is choice. Fund managers can choose the level of supervision they require, depending on the class of assets that the fund will invest in, and the kind of clients that the fund will market itself to. Accordingly, funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).
A Luxembourg sub-structure offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers. Besides, this is a well-established practice, being tried and tested for many years.
Distribution options are also available. For instance, the umbrella and sub-funds could be passported on the basis of the UCITS or AIFMD framework.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/guide-to-the-adgm-category-3c-asset-manager-license

ADGM Category 3C Asset Manager License:

Firms engaging in the activity of ‘Asset Management’, can apply to the ADGM for a Cat 3C License. Asset management, in this context, means managing client portfolios on a discretionary basis, under a client mandate. This license also allows the firm to carry our non-discretionary investment advisory and arrangement services, if those activities have been applied for as well.

A recent trend has been for investment bankers and financial advisors working with larger asset management companies, to set up on their own, and continue to work with the existing investment banks and custodians, as External Asset Managers. The ADGM Category 3C Asset Manager License is an ideal license for this activity, should the target market be primarily Abu Dhabi.

Firms interested in managing client assets from the ADGM are required to submit applications to the Financial Services Regulatory Authority, or FSRA.

The FSRA has a fast-track process for Fund Manager licenses, which also come under Category 3C. The Fund Manager, if approved, can manage domestic professional (ADGM Exempt Fund and ADGM Qualified Investor Fund) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/renting-a-sub-fund-in-luxembourg

Why rent a sub-fund in Lexembourg?

Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.

Luxembourg also has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.

What are the advantages of renting a sub-fund in Luxembourg?

Renting a sub-fund has many advantages:

The first one being time-to-market.

Using an established provider helps launch the fund quickly. The fund manager does not have to go through a separate setup process, nor negotiate terms with service providers, since these platforms are pretty much plug and play options.
Costs also play a big part, especially for first-time fund managers. Plugging into an existing ecosystem has its advantages in costs, as opposed to setting up a fund outright.
The third is choice. Fund managers can choose the level of supervision they require, depending on the class of assets that the fund will invest in, and the kind of clients that the fund will market itself to. Accordingly, funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).
A Luxembourg sub-structure offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers. Besides, this is a well-established practice, being tried and tested for many years.
Distribution options are also available. For instance, the sub-fund could be passported on the basis of the UCITS or AIFMD framework.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/real-estate-funds-in-luxembourg

Why setup a real estate fund in Luxembourg?

Luxembourg offers multiple fund structures with the flexibility of opting for supervision, lower requirements for diversification of assets and an option for passporting by appointing an AIFM.

Luxembourg has a diverse ecosystem of existing funds and service providers, which makes it easier to rent a compartment or make a sub-fund of an existing umbrella fund. This is usually used by startup or first-time fund managers of smaller funds, due to the ease of setup and lower costs.

Such factors have led to Luxembourg becoming the leading domicile globally, for real estate fund structures.

What are the advantages of setting up a real estate fund in Luxembourg?

There are many!!

The first big advantage is choice. Fund managers can choose the level of supervision they require, depending on the kind of clients that the fund will market itself to. Accordingly, funds can be unsupervised (such as SLPs), supervised (such as SIFs) or attach themselves with a supervised AIFM (such as RAIFs).
A Luxembourg structure also offers comfort to investors, given the good reputation of the jurisdiction, the enhanced protections offered to investors and the existing network of globally-recognised service providers.
Distribution options are the next major advantage. A Luxembourg real-estate fund could be passported on the basis of the AIFMD framework, once it appoints an AIFM.

Such funds also have a more advantageous tax treatment, with the choice of tax treatment according to the choice of investment fund. For instance, real estate funds can be fully taxable and have access to Luxembourg’s double tax treaties network. Alternatively, funds can be tax exempt, but with very limited access to double tax treaties. A third course being tax neutral, with either legal or no legal personality. In this case, the partners of the fund are subject to tax, and not the fund itself.

This episode is also available as a blog post: https://10leaves.wordpress.com/2021/03/14/launch-your-fund-with-10-leaves/

LAUNCH YOUR FUND WITH 10 LEAVES!

In today’s episode, we take you through what we can do for you, as service providers. Costs may differ based on the structures involved, but the underlying theme is – affordability, and turnkey solutions.

That’s it. It is that simple.

Let’s go to the solutions bit right away, since costs are subjective. However, we can assure you that our prices are unbeatable, of course, for the experience that we bring in. Our 50+ fund clients in the last year stand testimony to this fact!!

In terms of jurisdictions, we advise on DIFC funds, ADGM Funds and Luxembourg funds. That is quite a spread of literally any kind of fund that you can think of, including UCITS, Hedge funds, Islamic funds, PE and VC funds and the like.

Interestingly, 10 Leaves has managed to get the first two approvals for VC Fund managers under the new D I F C VC Fund regime, with many more in the pipeline.

By the way, we offer the fastest way to launch your Venture Capital Fund in the D I F C, and have everything sorted for you, in one seamless solution!!

This episode is also available as a blog post: https://10leaves.ae/publications/difc/new-difc-venture-capital-funds-regime

The DIFC has implemented a path-breaking VC Fund Manager Regime, that promises to add to the current startup ecosystem being built through the DIFC Fintech Hive and the DIFC Innovation Hub. The regime is a carve-out of the already fast-tracked Restricted Fund Manager regime, that is in place for entities that wish to only manage private funds

Definition of a VC Fund as per the DIFC: A VC fund would have to:

Be an Exempt Fund or a Qualified Investor Fund, open to Professional Clients only;
Be a closed-ended fund;
Invest at least 90% of it’s committed capital in unlisted businesses, which are not more than 10 years old; and
Fund the underlying ventures through equity instruments only

VC funds are usually closed-ended, for a fixed tenure and can be structured as Closed-ended Investment Companies or Partnerships.

Other benefits:

In addition to the above, the DFSA:

Allows self-custody of fund property;
Makes the appointment of an investment committee optional;
Allows VC funds to invest more than 25% in a single undertaking;
Makes internal audit of the fund manager optional;
Removes the requirement for a Finance Officer;
Removes the requirement for appointment of a Compliance Officer until initial commitments of capital are required; and
Apply simpler capital requirements

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-tech-startup-license

What is a DIFC Technology Startup License?

The DIFC started by attracting financial technology, or Fintech players into its DIFC Fintech Hive, which is an accelerator that just completed its third cohort, with over 30 fintech companies. It quickly extended the benefits of a startup license to all kinds of tech startups – fintech, edutech, regtech, and all technology-based startups that wish to cater to the region.

The DIFC tech startup license offers heavily discounted initial and ongoing fees, world-class co-working spaces at low costs, and an ecosystem of fellow technology firms, seed and angel investors, and access to the leading venture capital firms in the region.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/guide-to-the-adgm-category-4-investment-advisor-license

The ADGM is an upcoming international financial centre in the MENA region for business and fintech. The quality of ADGM’s independent regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in Abu Dhabi and the greater MENA region.

Why setup a financial services firm in the ADGM?

The ADGM is one of two international financial centres in the UAE. Established in 2015, it quickly rose through the rankings and is now counted as one of the top 25 financial centres in the world. ADGM’s innovative SPV regime, its initiatives in the fintech space and its issuance of the region’s first cryto-asset regulatory framework, have all contributed to its success.

Clients who wish to cater primarily to the Abu Dhabi market, sovereign wealth funds and Abu Dhabi family offices may consider setting up in the ADGM.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/luxembourg-securitisation-vehicles

Why setup a securitisation vehicle in Luxembourg?

In Luxembourg, securitisation of a wide range of assets, loans, bonds, incomes and risks is allowed. In addition to this, risks related to debt, movable or immovable property, tangible and intangible assets are also allowed to be securitised.

In general, anything that is a store of future income can be securitised in Luxembourg.

Issuers mainly use securitisation as an alternative to funding from banks and other formal lending institutions. Luxembourg offers many investment vehicles that can be used for securitisation transactions.

Luxembourg has an extensive Securitisation Law, that is innovative and designed for cross-border transactions, especially in the European Union. This has become very popular and there are currently more than 1500 securitisation vehicles, with over 7,000 compartments in Luxembourg, resulting in over 35% market share in all of Europe.

Other advantages include:

choice between various legal structures – companies and well as investment fund structures
the securitisation vehicle can be supervised or non-supervised
Such vehicles can be listed
Tax-neutrality
Higher levels of investor protection
Can create compartments
Recognition of ring-fencing

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/luxembourg-specialised-investment-fund-sif

Advantages of setting up a SIF in Luxembourg

The following are the advantages of setting up a SIF in Luxembourg:

Can be established as a SICAV or SICAF. These can be established as public limited companies (SA), Private limited company (SARL), limited partnerships, special limited partnerships (SLP) or partnerships limited by shares (SCA).
Can be setup as a contractual fund (FCP) with no legal personality and managed by a management company.
Can be setup as an Umbrella Fund as well, with multiple compartments
Asset protection – The SIF has to appoint an eligible custodian, that has to be present in Luxembourg, either directly or through a branch office.
Supervision – The SIF is supervised directly by the CSSF. In case the SICAR falls under the purview of the AIFMD, then it has to appoint a regulated AIFM, which adds an additional layer of regulation and protection for the investors.
Tax attractiveness – The SIF is exempt from most Luxembourg taxes. There is a 0.01% tax on the net asset value of the fund.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/setting-up-a-private-equity-structure-in-luxembourg

How do I establish a PE fund in Luxembourg?

Luxembourg offers multiple fund structures for private equity transactions.

Specialised Investment Fund, or SIF, is the most flexible investment fund structure, that can be used for multiple asset classes and investment strategies, including Private Equity deals.

The Luxembourg SIF is a supervised corporate vehicle and usually reserved for professional or qualified investors. It has low diversification requirements and can also be established as an umbrella fund with multiple sub-funds, thus allowing for multiple deals in the same structure. A Luxembourg Specialised Investment Fund can also qualify to obtain an AIFMD passport, given that it satisfies some mandatory conditions.

The Luxembourg Investment Company in Risk Capital, or SICAR, is also a supervised investment vehicle. The main purpose of the SICAR is to invest in risk-bearing assets, and is meant to be used as a vehicle for professional and qualified investors. SICARs are not obliged to follow risk-spreading obligations or diversification requirements. A Luxembourg SICAR can also qualify to obtain an AIFMD passport, given that it satisfies some mandatory conditions.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/reserved-alternate-investment-funds-raif-in-luxembourg

What is a Luxembourg RAIF?

The Reserved Alternative Investment Fund was created following the implementation of the AIFMD. Structurally, it is a combination of the Specialised Investment Fund (SIF) and the Investment Company in Risk Capital (SICAR).

However, unlike the SIF and SICAR, the RAIF is not ordinarily supervised by the Luxembourg CSSF. This allows the fund to be launched quickly, since double-supervision is avoided. However, a RAIF would have to appoint a CSSF-regulated Fund Manager (AIFM).

The Luxembourg RAIF is very popular in the EU, and there are around 650 RAIF established as of 2020.

Can a RAIF be sold to all investors?

A Luxembourg RAIF can only be sold to qualified investors, which include institutions and professional investors.

In some cases, prospective investors can declare that they a) can invest a minimum of Euro 125,000 or obtain a confirmation from a credit institution, an investment bank or a management company, certifying their expertise, experience and knowledge in sufficiently judging and understanding the implications of an investment made in the RAIF.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/investment-company-in-risk-capital-sicar-in-luxembourg

What is a Luxembourg SICAR?

The investment company in risk capital (SICAR) is an investment fund structure in Luxembourg. It is governed by the SICAR Law of 2004, and can mainly invest into risk-bearing assets, without the requirement of spreading or diversifying the risk. The SICAR is only open to qualified investors.

A Luxembourg SICAR is regulated by the CSSF. Currently there are over 250 SICARs setup in Luxembourg, with over EUR 58 billion of assets under management.

What assets can the SICAR invest in?

Usually, SICARs invest in unlisted companies, whether in the form of equity or debt. They can also invest in any geography, not just the European Union. Investments into listen companies can also qualify in some instances, for example, when the investment aims to finance a new line of business.

There is no requirement for the SICAR to diversify it’s risks.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/setting-up-representative-office-in-the-adgm

The ADGM is an upcoming financial centre in the MENA region for business and fintech. The quality of ADGM’s independent regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in Abu Dhabi and the greater MENA region.

What is an ADGM Representative Office? The ADGM offers a low-cost alternative for firms that wish to explore the market. It allows for the marketing of one or more financial services or financial products which are offered in a jurisdiction other than the ADGM. These products are usually of a head office that is based in a different jurisdiction.

This episode is also available as a blog post: https://10leaves.ae/publications/adgm/comprehensive-guide-to-spvs-in-the-adgm

The Abu Dhabi Global Market (ADGM) has been open for business only since October 2015, but it has already garnered much praise and respect over its efforts to differentiate itself through unique offerings. It pioneered the FinTech Abu Dhabi summit, attended by over five hundred global Financial Technology (FinTech) personalities; and has launched a series of collaborations with different companies such as Temenos, Al Ansari, and Mastercard to help forward its FinTech initiative.

Another such initiative is the Special Purpose Vehicles (SPV) regime. The SPV regime is open to a wide variety of uses, from investor-friendly holding structures, to asset separation and transfer.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/venture-capital-in-the-middle-east

The Middle East in general, and United Arab Emirates and Saudi Arabia in particular, has seen a number of government-led initiatives for technological innovation in recent years. A large untapped market for Arabic-based content, a very young population and excellent technological connectivity makes the region a hotbed for enterprising entrepreneurs who are hungry for success.

VC firms from more mature markets also bring much-needed technological expertise and vast experience in funding and management, both of which are required to grow the ecosystem here.

Co-investment with locally-based venture capital fund managers also makes sense, given their regional expertise. Deals abound in the innovation centres that have been created, and prices are lower than what would be typically available in say Europe, the States or India. Having a local presence and tying up with VC Fund managers here would help create a deal pipeline that can be interesting.

So how does one go about it?

VC Fund Managers who are interested to enter the region, can consider the DIFC as a viable option.

This episode is also available as a blog post: https://10leaves.ae/publications/luxembourg/special-limited-partnership-in-luxembourg

What is a Special Limited Partnership, or Luxembourg SLP?

The SLP is an unregulated Alternative Investment Fund, that can be incorporated in Luxembourg by:

one General Partner (GP) – the fund manager; and

one Limited Partner (LP) – the investor

The Luxembourg SLP structure has been modelled on partnerships that can be setup in other jurisdictions such as United States, United Kingdom and the Cayman Islands. Their strategies are usually illiquid, and typical investments are made in real estate, PE or the debt markets. However, there are no restrictions on the asset classes, or on the fund strategies.

A Limited Partnership Agreement governs the functioning of the SLP and gives the fund the contractual flexibility to organise the fund structure. An SLP is not restricted to any asset class, nor is it subject to risk diversification rules.

There are more than 2,600 SLPs that were set up in Luxembourg between 2016 and 2019.

Who manages a Luxembourg SLP?

The Luxembourg SLP appoints a General Partner, usually a private limited company also established in Luxembourg, to manage and monitor the fund on behalf of the investors, or Limited Partners. A GP has unlimited liability for all obligations of the Luxembourg SLP, and hence it is usually a distinct legal entity.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/setting-up-a-regulated-fintech-license-in-the-difc

Regulated Fintech Licenses In The DIFC: Firms interested in carrying out fintech activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises fintech activities based on the type of activity being carried out, and the minimum base capital required.

Consequently, fintech activities can form part of Category 3 and Category 4 licenses, which various related activities such as advising and arranging investments, portfolio management (discretionary and non-discretionary), money service businesses and digital/robo advisory activities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-aisp-and-pisp-licensing-in-the-difc

What is a Money Services Business? Money Services Businesses cover a wide range of money-related activities, starting from payment processing companies to investment services, from individuals and startups to major global enterprises. They can include providing account information services, payment initiation services or analytics on client and corporate accounts. Other core money services can include issuing payment instruments, providing money transmission, payment processor services, operating payment accounts and issuing stored value. Transferwise, Nymcard, Paypal and Revolut are examples of money service businesses.

DIFC AISP and PISP License: Firms interested in carrying out money services business activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Arranging and Advising on Money Services :

These include firms that provide open banking services, such as Account Information Services, Payment Initiation Services and other advising and arranging services.

Account Information Services – These firms are authorised to retrieve account information data from banking and other financial institutions such as lenders, mortgage providers, and credit card issuers. Such firms cater to both individuals, and institutions (mostly SMEs). Account Information Services come under Open Banking activities.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/cost-of-setting-up-a-regulated-firm-in-the-difc

DIFC is one of the world’s top ten onshore financial centers and offers a secure and efficient platform for businesses and financial institutions to reach into and out of the emerging markets of the region. The quality and independence of DIFC’s regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in the MENASA region.

DIFC fills the time-zone gap for a global financial centre between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East.

Why setup a financial services firm in the DIFC?

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

There exist opportunities for startups as well. The recent focus on fintech led to the DIFC Fintech Hive initiative, that serves as an accelerator for fintech firms to test their products and pitch it to prospective investors. Sarwa is one such success story.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/advantages-of-setting-up-a-business-in-the-difc

The Dubai International Financial Centre, or DIFC, is a leading financial hub in the region for business, fintech, and lifestyle. Setup in 2004, the DIFC has grown to be one of the top 10 onshore financial centres in the world. It brought in a paradigm change in the region, by adopting a Common Law framework, with an independent regulator (DFSA) and an independent English language Common Law judiciary – DIFC Courts.

Since then, the DIFC District has matured into more than just a place to work – it is now a lifestyle destination, with retail outlets, cafes and restaurants, art galleries, residential apartments, public green areas and hotels dotting the landscape.

Why setup in the DIFC?

The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-as-a-destination-for-indian-fund-managers-difc-company-formation

The India - UAE relationship India and the UAE have shared warm relations going back centuries. The recent high-level visits of UAE and Indian leaders demonstrate the proactive nature of decision-making between the two countries. Another reason for the greater depth in relations is the rigorous structure of various committees that have been set up following the high-level visits.

In addition, there are enormous possibilities from the $75-billion fund announced in 2015 by Indian Prime Minister Shri. Narendra Modi and His Highness Shaikh Mohammad Bin Zayed.

With a 3.2-million-strong population, the Indian expatiate population in the UAE is the largest in the world, and is growing on a year-on-year basis. Over 1,000 flights operate between the two countries, and recent years have shown a significant increase in the number of tourists traveling from India to the UAE.

In 1982, foreign trade figures between the UAE and India were at around 180 million. In 2016-17, these numbers crossed $52 billion, thus making India the second largest trading partner of UAE, and UAE became India’s third largest trading partner.

At US$ 6.5 billion, India is the third-largest source of FDI in the UAE. Indians are the largest foreign investors in Dubai real estate, amounting to over US$ 5.7 billion, or 13% of the total.

Why setup in the DIFC? The DIFC is one of the only two financial free zones in the UAE. It offers 100% foreign ownership, as opposed to establishing a financial services firm in the Dubai mainland, where only part foreign ownership is permitted. The DIFC is the preferred gateway for Indian investors to access the Middle East, Africa and South Asia (MEASA) markets on one side and Europe, Asia and the Americas on the other – a region worth an estimated USD 7.4 trillion in annual trade.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-licensing-process-for-authorised-firms

Setting up a regulated firm in the DIFC: Firms interested in engaging in financial services from the DIFC are required to submit applications to the independent regulator - Dubai Financial Services Authority, or DFSA.

The DFSA offers a wide range of financial service activities, from investment advisory to asset management, brokerage and wholesale banking. For the purposes of authorisation and supervision,the DFSA categorises applicants based on the activities applied for. There are five main categories of Authorised Firms in the DIFC.

Read more about the DIFC Licensing categories here:

https://10leaves.ae/publications/difc/difc-licensing-categories

This episode is also available as a blog post: https://10leaves.ae/publications/difc/investment-funds-in-the-difc

Why setup an investment fund in the DIFC? The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of DIFC Public Fund, DIFC Exempt Fund and DIFC Qualified Investor Fund. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/service-providers-for-investment-funds-in-the-difc

An investment fund in the DIFC requires a basic network of service providers, who carry out key outsourced functions, and help the fund conduct it’s activities. Fund Administrator: A fund administrator carries out calculations of Net Asset Values (NAV) of the fund units, manages the investor onboarding process, including subscriptions & redemptions, and does all necessary due diligence on the investors. A fund administrator also prepares financials reports for the fund. In case of open-ended funds, a fund administrator also carries out trade and account processing, confirmation of trades & reconciliations, cash management, shareholder register management, investor document retention and overall investor communication on all reporting and corporate actions.

A Qualified Investor Fund in the DIFC does not have to appoint a fund administrator for closed-ended funds this function can be handled in-house. However, in most cases, a fund administrator brings to the table a lot of benefits that can be valuable especially to smaller funds who cannot carry out this function effectively in-house.

Legal Counsel:

It is mandatory to appoint legal counsel for an investment fund. A typical fund setup involves at the very least, three main documents – a detailed private placement memorandum (PPM), an investment management agreement between the fund manager and the fund, and a fund constitution that serves as the Articles of Association of the fund, and helps govern the internal matters of the fund. Other relevant documents include the information memorandum, which is usually a subset of the PPM, and subscription agreements that can be quite detailed in some cases.

Legal counsel help draft this extensive set of documentation, and review fund marketing material. They also play a role in investor dispute resolution & litigation.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/required-documents-for-a-fund-in-the-difc

Starting an investment fund not only requires deep understanding what investment strategies, but also of the various structures available and the documents required for these structures. Broadly speaking, there are two main categories of hedge fund structures in the DIFC – partnerships and investment companies. Let’s take a closer look at the documents required to setup partnerships and investment company-related structures in the DIFC.

For DIFC-investment companies:

Private Placement Memorandum.
Subscription Agreement (for investors).
Investment Management Agreement.
Fund Constitution.

For DIFC Partnerships:

Private Placement Memorandum.
Limited Partnership Agreeement.
Subscription Agreement (for investors).
Investment Management Agreement.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-open-ended-and-closed-ended-investment-funds

DIFC OEIC and DIFC CEIC vehicles: Funds that are structured as companies, have two main options in the DIFC.

Open-ended Investment Company (OEIC)

Closed-ended Investment Company (CEIC)

There are many considerations that go into choosing a legal structure for a fund. Some of them being – the jurisdiction of choice, the fee structure, tax considerations and the like. The choice between open-ended and closed-ended vehicles for DIFC investment funds however, depends a lot on the investment objective and fund strategy.

The basic difference between an open-ended and a close-ended fund is the option of liquidity, i.e. whether investors (or unit holders) are allowed redemptions. Open-ended funds allow periodic redemptions on certain days, depending on how frequently the Net Asset Value (NAV) of the fund is calculated. For heavily traded funds, this can be daily as well. Most private funds however, have longer NAV periods, ranging from monthly, to quarterly. Closed-ended DIFC funds however, have no such provisions. They are essentially illiquid, due to the nature of the underlying investments. Such funds are usually property or venture capital funds, that require a longer commitment to the underlining investment objectives. These funds have to be closed-ended, since it would not be practical to fulfill periodic redemption requests by selling off the underlying assets. Some closed-ended funds do have an exit option – solely at the discretion of the directors, and at a steep exit fee.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-qualified-investor-funds

Why setup an investment fund in the DIFC?

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of Public, Exempt and Qualified Investor Funds. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-exempt-funds

The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.

The Dubai Financial Services Authority, or DFSA, acts as the independent regulator of fund managers and investment funds setup in the DIFC, which provides a high degree of comfort to individual and professional investors. The DIFC offers both Domestic Fund Manager and External Fund Manager licenses, both of which allow for the management of DIFC Public fund, DIFC Exempt fund and DIFC Qualified Investor Fund. The DIFC Registrar of Companies (ROC) offers multiple fund structures, included open-ended and closed ended investment companies, and GP-LP structures.

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/hedge-funds-in-the-difc

Setting up a fund in the DIFC requires either a) setting up a Domestic Fund Manager or b) licensing an existing fund manager in a recognized jurisdiction, to act as the External Fund Manager of the DIFC fund. Read this article to know more about the licensing process and associated costs.

A hedge fund in the DIFC will also need to appoint some service providers to carry out critical functions, such as fund administration and audits. Read this article on the different services associated with maintaining a hedge fund in the DIFC.

Did you know that a Private Placement Memorandum, or PPM, is the key document for DIFC Investment funds? The PPM details material information on the fund and serves as the backbone of the legal documentation involved. Read this article to know more about the documents required for setting up a hedge fund in the DIFC.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/setting-up-a-representative-office-in-the-difc

The financial services industry is growing at a rapid pace in the region. The Dubai International Financial Centre (DIFC), is at the forefront of this change. Ranked among the top 10 onshore financial centres worldwide, the DIFC is arguably THE place to be for financial service companies looking at targeting not just the UAE, but the whole MENA region. Setting up a representative office in DIFC is one of the ways of testing the waters, before deciding on taking on a full-fledged license.

The DIFC offers a low-cost alternative for firms that wish to explore the market. It allows for the marketing of one or more financial services or financial products which are offered in a jurisdiction other than the DIFC. These products are usually of a head office that is based in a different jurisdiction.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-external-asset-manager-license

DIFC External Asset Manager License:

Individuals who wish to set up as an External Asset Manager, can choose one of two models:

Setting up a Discretionary Asset Management License or
Setting up as an Investment Advisor

Case 1 is usually a Category 3C Asset Management License. In this case, the EAM has complete control on the relationship with his client, under a discretionary mandate. However, the DFSA requirements are steeper in this case, with a base capital of US$ 500,000 required, among other things. You can read more here:

Requirements for a DIFC Category 3C Asset Manager License:

Alternatively, you can start with an entry-level Category 4 Investment Advisory License, that allows you to set up in an easier manner, get a track record, and then apply for an upgrade. You can read more here:

Requirements for a DIFC Category 4 Investment Advisor License: In both cases, firms will have to apply to the DFSA for a Regulated License.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/difc-category-3a-brokerage-license

The DFSA, for the purposes of authorisation and supervision, categorises brokerage activities under Category 3A. These include forex, commodity and derivatives brokerages.

This license allows for ‘Dealing In Investments as Agent’ and ‘Dealing in Investments as Principal’ , or on a matched Principal basis. Due to the higher risks associated with these activities, the DFSA places higher entry-level requirements, namely the pedigree of the applicants and their regulated background. It also places restrictions on the license itself -professional clients only, lower leverage. Retail endorsement is possible, but requires a high degree of comfort from the regulator.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-providing-money-services-business-licenses-in-the-difc

Firms interested in carrying out money services business activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Providing Money Services (includes issuing payment instruments, providing money transmission, issuing stored value and providing or operating a payment account).

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-payment-service-provider-psp-licenses-in-the-difc

Firms interested in carrying out PSP activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.

The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.

Providing Money Services (includes issuing payment instruments, providing money transmission, issuing stored value and providing or operating a payment account).

This episode is also available as a blog post: https://10leaves.ae/publications/difc/category-4-difc-investment-advisory-license-difc-license-categories

Firms interested in carrying out investment advisory activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises investment advisory, credit advisory and insurance advisory activities under Category 4. Other activities that come under a Category 4 license include crowdfunding. While the Category 4 license allows firms to deal with Professional Clients only, it is possible to seek a Retail Endorsement during, or after the licensing process.

This episode is also available as a blog post: https://10leaves.ae/publications/difc/guide-to-the-difc-fund-manager-license

Firms interested in managing funds from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA has a fast-track process for Fund Manager licenses, which come under Category 3C. The Fund Manager, if approved, can manage domestic (Public, DIFC Exempt Fund and DIFC Qualified Investor Fund) and Foreign Funds in other jurisdictions as well. In case the firm wishes to also engage in discretionary portfolio management services, it has to go through a full-fledged license process.

DIFC Crowdfunding License:

Firms interested in carrying out crowdfunding activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.

The DFSA, for the purposes of authorisation and supervision, categorises the crowdfunding business as a Category 4 entity, with the primary activity of “Operating a Crowdfunding Platform”. The base capital required for a DIFC Crowdfunding license is US$ 140,000.

This episode is also available as a blog post: https://10leaves.wordpress.com/2021/02/24/guide-to-the-difc-crowdfunding-business-license/

This episode is also available as a blog post: https://10leaves.ae/publications/difc/new-difc-venture-capital-funds-regime

With DIFC Funds, Fund Managers can target the GCC market, and the wider MENASA region, taking advantage of the numerous Double Taxation Avoidance Treaties that the UAE has in place. Zero-rate personal and corporate tax also make the DIFC an attractive destination to setup and manage investment funds.

The DIFC has also now proposed a Venture Capital Fund regime, that aims to attract VC firms from all over the world, into the centre.