DIFC and the ADGM - How Do They Compare?

  • 08-04-2019

Both the DIFC and the ADGM are onshore financial centers, with excellent infrastructure, robust framework and multiple options for setting up a financial services business. Potential applicants for authorization at either center would want to evaluate the pros and cons of each and understand the costs involved before making a decision.



DIFC and the ADGM - How Do They Compare?



Three independent components – the DIFC Authority, Dubai Financial Services Authority (DFSA) and the DIFC Courts  

Three independent components – the Registration Authority, Financial Services Regulatory Authority (FSRA), ADGM  Courts  

Comment: Both jurisdictions are similar in structure, with the DIFC Authority taking on additional responsibilities of managing the leases of properties as well.  

Applicable laws: 




Codified Common Law

Common Law, as is

Comment: The laws of the DIFC do not directly incorporate English common law, and therefore they do not follow precedents set by the English courts (although such precedents may be persuasive if the particular circumstances call for the application of English law). 

In  contrast, the ADGM will in many cases presume the direct application of English law, and hence it is implied that they will find English court judgments to be at least persuasive (if not binding). 

Authorisation of financial services: 




Applications are made to the DFSA, which scrutinizes and processes applications by categorizing the applicants based on the financial services that they intend to carry out from the center. Five categories and all financial services are covered. 

Applications are made to the FSRA, which scrutinizes and processes applications by categorizing the applicants based on the financial services that they intend to carry out from the center. Five categories and all financial services are covered. 

Comment: The categories are similar and save for the capital requirements of one category, the requirements are quite similar too. Both regulators conduct a comprehensive review of the applications, placing an emphasis on the ability of the applicant to satisfy all requirements and have checks and balances in place, before issuing approvals. On an average, the ADGM currently processes applications a bit faster than the DIFC, and it remains to be seen whether it can continue to do so as the volumes increase.  

Cost of operating:  




Major costs here include DFSA fees (ranging from US$ 10,000 for fund managers to US$ 70,000 for banks), DIFC fees (usually around US$ 20,000) and office space leases (typically starting at US$ 80 per sq.ft.). DFSA fees are category-based, i.e. the fee would depend on the highest category the intended activities fall under. 

Major costs here include FSRA fees (ranging from US$ 5,000 – US$ 30,000 per activity), Registration Authority fees (usually around US$ 15,000) and office space leases (typically starting at US$ 80 per sq.ft.). Cost-effective business center options are available. FSRA fees are activity-based, i.e. a fee is charged for each intended activity.  

Comment: While on paper, the fees look similar, in practice, the ADGM proves to be more cost-effective for startups, who can lease business center spaces and commence with a single activity. Having said that, costs can quickly escalate once more activities are added, or in case the firm expands into a bespoke office space.

Ongoing supervision: 




All authorized firms are subject to strict ongoing supervision, with stringent regulatory requirements and heavy penalties in case of non-compliance.  

While the ADGM has not been in existence long enough to check for precedence, it is expected that the FSRA will be as stringent in ensuring continued compliance with the regulation.  

Comment: Both centers have robust and comprehensive regulation, with sufficient penal clauses to ensure compliance. This helps both the DIFC and the ADGM reinforce their standing as well-regulated jurisdictions.  

Where the DIFC scores: 

The DIFC has been in existence for over seventeen years now and is a tried and tested jurisdiction. It has, over the course of time, built up a reputation and a brand in the region. Established firms seeking to operate a regional headquarters would gravitate towards the DIFC. The center hosts over 22,000 professionals in the finance field, which in itself creates a diverse environment for the exchange of ideas and conduct of business. All major international and regional banks, top asset managers and investment advisors are present at the DIFC, making it the destination of choice when it comes to a financial firm choosing to set up in the GCC. 

The DIFC has also come up with robust initiatives such as the FinTech Hive (an accelerator for fintech startups) and the Crowdfunding license (a first for the region). The technology license that DIFC offers is cost efficient, with government fees coming in at US$ 1,500 per annum for the first two years, and access to a fully connected workspace at US$ 500 per month.

The ambitious DIFC 2.0 initiative also tilts the scale, since it aims to triple in size and create a holistic working and living space, thus making it a lifestyle destination. 

Where the ADGM scores: 

The ADGM is the newest onshore financial center, and it is building itself from the ground up. While this can be viewed as a disadvantage, the benefit of learning from mistakes does exist. The ADGM is the place to be for financial startups, due to the reduced costs, faster go-live and a proactive regulator. The FinTech RegLab initiative is both creative and path-breaking; the ADGM SPV regime is the most flexible in the region, both demonstrating the intent of the ADGM to position itself as a dynamic and pro-business financial free zone.

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