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.
Here are some specific advantages of establishing in the Abu Dhabi Global Market:
LEGAL AND REGULATORY FRAMEWORK:
- Legal framework supports cross-border activities.
- 100% foreign ownership permitted.
- No restriction on foreign talent or employees.
- No restrictions on capital repatriation.
- Zero tax for 50 years on profits, capital or assets from 2004.
- Zero tax on employee income.
- Well regarded, independent regulator.
- Independent, English-speaking, common law judicial system.
- Distinct from the UAE legal system.
- Risk-based regulatory approach.
- Central to regional deal making.
- High concentration of international firms, investment funds, wealth management firms, banks, and financial institutions.
- World-class regional and international law and auditing firms, and other professional services.
- A growing fund domicile in the region.
- Management offices, holding companies and family offices are located closer to the assets they own or manage.
- The Middle East, Africa and South Asia (MEASA) is increasingly the centre of gravity for the global economy.
- The UAE plays a central role in the growing South-South trade, principally between Asia and Africa.
- Well-positioned to harness the potential of emerging markets..
ADGM Category 3C 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 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 a Private Placement.
As with other category firms, the FSRA expects that the firm be adequately staffed depending on the scale, scope and nature of the product portfolio that is proposed to be offered from the ADGM. At a minimum, the FSRA would like to see the following appointments:
Board of Directors – a well-organized, diverse Board with Independent Directors and robust governance policies. The Chair would have to be a non-executive Director.
Senior Executive Officer (SEO) – Senior banking professional with over 10-15 years of experience, ordinarily resident in the UAE.
Finance Officer (FO) – Senior and suitably-qualified finance professional. In case of a group, the FO can be from the parent company and does not have to be resident in the UAE. This role can be outsourced to us.
Risk Officer – Senior risk professional, can be from the parent entity in case of a group.
Compliance Officer (CO) - Senior compliance professional with over 10 years of experience, ordinarily resident in the UAE. This role can be outsourced to us.
Money-Laundering Reporting Officer – Senior AML professional with over 10 years of experience, ordinarily resident in the UAE. This function can be combined with Compliance and one individual can carry out both responsibilities.
Internal Auditor - Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm based in the ADGM.
External Auditor - Senior and suitably qualified external audit firm. The FSRA maintains a list of recognised auditors.
ADGM Capital requirements
The base capital requirement for a Category 3C Fund Manager is $50,000 if it manages Exempt (EF) or Qualified Investor Funds (QIF). Actual capital required will depend on the nature, quantum of business and forecasted annual expenditure, as per the financial model of the proposed firm.
Capital waivers may be available to the ADGM branch of a regulated financial institution having its head office in a recognized regulatory jurisdiction.
Actually, there are three components of capital - base capital, risk-based capital and expense-based capital. The higher of the three is set to be the capital requirement. These figures are calculated using the financial models that we make for the Regulatory Business Plan during the application process, and so are mostly unique to the company that applies for the license.
In general, for Fund Management firms - expense-based capital is 13/52 of the projected annual expenses of the firm.
Calculation of capital is a detailed process and involves many factors. We recommend that you contact us for more details on the application process and capital calculations.
The FSRA Application Process
The FSRA application process commences with formal introductions to the FSRA team.
Following the introductory call, a short-form Regulatory Business Plan (RBP) is prepared, along with financial projections, for a quick review by the regulator.
The comments of the regulator are incorporated into the RBP, and a comprehensive application is compiled, comprising policies, processes and other related documentation. The KYC and associated forms of all key individuals are also prepared for submissions.
The formal application is then sent across to the FSRA, who reviews the pack over a period of 7-10 business days, and then accepts it. The detailed review process then commences, and this can take anywhere between four to six weeks to complete.
The regulator maintains communication with the applicant at all times during the review, reverting with an initial review 2 weeks into the application, and then follow-up reviews thereafter. The FSRA also meets with the SEO, FO and CO/MLRO designates, and conducts a detailed interview with them.
An in-principle approval is issued in case the application is successful. The applicant then proceeds to satisfy the in-principle conditions, and this involves the setting up of a legal structure, opening a bank account, and depositing the share capital in the account. Other tasks include finalization of auditors and obtaining professional indemnity insurance for the firm.
Once done, a final submission is made to the FSRA, following which the regulator issues the Financial Service Permissions and the process is then complete. The firm is now open for business.
What about the fund?
The application to establish one (or many) funds can be made once the fund manager is licensed. The FSRA would require the fund documentation – the Private Placement Memorandum (PPM) and the Fund Constitution to be available, and confirmations from the Fund Manager on the various service providers that are required to operate and manage the fund.
These include custodians, fund administrators, legal consultancies and banks.
The FSRA has a quick review of the submission and issues an approval, following which the legal structure of the fund is established with the ADGM Registration Authority.
The final step is opening an account for the fund with a bank. Once done, the fund is able to accept investor subscriptions.
Setting up an ADGM Regulated Firm involves the following interactions:
Financial Services Regulatory Authority (FSRA)
The FSRA is responsible for reviewing and approving all applications for financial services. Costs depend on the activities applied for, which puts the applicant in one of five categories.
Generally, there are two components of FSRA fees. One – an application processing fee, and the other, an annual licensing fee.
(i.) Application fee: US$ 5,000.
(ii.) License fee: US$ 5,000.
Registration Authority (ADGM RA)
The RA helps to set up the legal structure of the ADGM Regulated Firm. Shareholders can be individual, or corporate. There are many options available, such as ‘Private Company Limited by Shares’ and ‘Limited Liability Partnerships’. In case of Private Company Limited by Shares, the costs for setting up include:
(i.) Application for reserving a name (2 working days): US$ 200.
(ii.) Application for Incorporation of a Private Company Limited by Shares (5 working days): US$ 1,500.
(iii.) Commercial License on Incorporation (5 working days): US$ 4,000 (annual fee).
(iv.) Business Activity Fee: US$ 9,000 (annual fee).
(i.) The data protection notification is part of the process of registering a new entity in the ADGM. The costs involved are as follows:
(ii.) Registration - US$ 300.
(iii.) Annual renewal – US$ 100.
Every entity registered in the ADGM is required to lease a physical office. You can choose from the WeWork and Regus business centres, or from the four buildings managed by Mubadala.
Prices vary, depending on the space availed and the building. Here is an indication of the prevailing rates:
(i.) WeWork Business Centre – from a two-desk office at US$ 15,000.
(ii.) Fitted Offices – from US$ 55 per square foot.
(i.) Establishment Card Application – US$ 300.
(ii.) E-channel Application – US$ 1,200.
(iii.) Visas (per visa) – from US$ 1,200.
We provide turnkey services for Category 3C ADGM Fund Manager License. From fintech consulting, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the FSRA Rulebook and submit an application that is comprehensive, complete and compliant.
Our services include assistance in:
1. Reviewing the business model and advice on the applicable regulatory framework;
2. Preparation of the Regulatory Business Plan and comprehensive financial projections;
3. Preparation of all policies, processes and manuals required;
4. Provision of Outsourced Compliance Officer and Outsourced Finance Officer services;
5. Finalising the legal structure, including holding company setup and customisation of Memorandums; and
6. Finalisation of leased space, bank account opening and obtaining Financial Services Permissions.
A lot of our Fund clients are startups, where experienced fund managers set up their own shop. In these cases, we also assist such teams with corporate and commercial documentation, including fund documentation, through our legal consultany - 10 Leaves Legability. We assist in the drafting of:
1. Fund Private Placement Memorandum.
2. Fund Constitution.
3. Investment management agreements.
4. Subscription agreements.
5. Founder agreements.
6. Shareholder agreements.
7. Investor agreements.
8. Share vesting/ESOP plans.
9. Client/Supplier/Distributor agreements.
10. Employment agreements.
We also provide services in Luxembourg, Saudi Arabia and Mauritius.
Contact us for more information on ADGM Category 3C Fund Manager License.