Guide to the DIFC Category 3A Brokerage License

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 (https://www.sarwa.co) is one such success story.

Specific Advantages

Here are some specific advantages of establishing in the Dubai International Financial Centre.

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

TAX BENEFITS

  • Zero tax for 50 years on profits, capital or assets from 2004
  • Zero tax on employee income

COUNTERPARTY CONFIDENCE

  • Highly regarded, independent regulator
  • Independent, English-speaking, common law judicial system
  • Distinct from the UAE legal system
  • Risk-based regulatory approach

DIVERSE ECOSYSTEM

  • 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
  • The largest fund domicile in the region

GEOGRAPHIC EPICENTRE

  • 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
  • Dubai plays a central role in the growing South-South trade, principally between Asia and Africa
  • Well-positioned to harness the potential of emerging markets

DIFC Category 3A Brokerage License

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

Proposed activities can include:

Dealing in Investments as Agent

Dealing in Investments as Agent means buying, selling, subscribing for or underwriting any Investment as agent.

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).

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’ (matched Principal basis). Due to the higher risks associated with these activities, the DFSA places higher entry-level requirements (pedigree of the applicants, regulated background) and restrictions on the license itself (professional clients only, lower leverage). Retail endorsement is possible, but requires a high degree of comfort from the regulator.

Required appointments

The DFSA considers brokerage as a high-risk activity , and so the staffing requirements depend on the scale, scope and nature of the product portfolio that is proposed to be offered from the DIFC. At a minimum, the DFSA 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.

Chief 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.

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. Can be outsourced to a professional firm.

External Auditor - Senior and suitably qualified external audit firm. The DFSA maintains a list of recognised auditors, and there are 15 such firms at present. 

DIFC Capital requirements

The base capital requirement for a Category 3A Brokerage license US$ 500,000. Actual capital required will depend on the nature, quantum of business and forecasted annual expenditure, as per the financial model of the proposed firm.

To be considered are the 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.

 
The figure given below is for base capital only, and actual capital may vary depending on the business model and the associated expenses and risks. 

In general, for firms that hold Client Assets, 18/52; else 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.

Can DIFC firms service clients outside the centre, and in the greater UAE?

Yes, they can. Sheikh Mohammed bin Rashid Al Maktoum issued Law No. (5) of 2021 relating to the DIFC, which brought further clarity to the rules governing the promotion and supply of services and products for firms registered in the centre.

The revised law confirms that DIFC-registered entities can supply services and products outside the DIFC, as long as they are primarily provided out of the firm’s premises in the DIFC area. Marketing and promotional activities are also allowed outside the centre.

There may be additional rules to follow, for instance, when actively marketing funds from the DIFC. A passporting regime exists in this case, where the fund manager can register for a passport for the fund to be marketed in the UAE and the ADGM. Do get in touch for more information on this.

Update:

Advising, arranging or managing Virtual Assets

The Dubai Financial Services Authority (DFSA) recently issued a consultation paper on the regulation of Crypto 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 first paper covered Security Tokens, and you can read the details here.

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 2 of the DIFC Digital Assets Regime covers Crypto Tokens, Utility Tokens, Exchange Tokens and Stablecoins, and you can read more here.

Any licensed firm that wishes to advise, arrange or manage crypto-assets, will have to apply for additional endorsements to their licenses. Get in touch with us to know more.

The  DIFC Application Process

DIFC Application Process Part 1 10 Leaves
 

DIFC Application Process Part 2 10 Leaves

 

The DIFC application process commences with formal introductions to the DIFC and the DFSA.

Following the introductory call, a detailed 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 DFSA, 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 60 and 90 days 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 DFSA 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 DFSA, following which the regulator issues the Financial Service Permissions and the process is then complete. The firm is now open for business.

Costs

Setting up a DIFC Regulated Firm involves the following interactions:

Dubai Financial Services Authority (DFSA)

The DFSA 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 DFSA fees. One – an application processing fee, and the other, an annual licensing fee.

1. Application fee: US$ 25,000 for a Category 3A license application.

2. License fee: US$ 25,000 for Category 3A license (prorated from the date of issuance of Financial Service Permissions). 

Registrar of Companies (DIFC ROC)

The ROC helps to set up the legal structure of the DIFC 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:

1. Application for reserving a name (2 working days): US$ 800

2. Application for Incorporation of a Private Company Limited by Shares (5 working days): US$ 8,000

3. Commercial License on Incorporation (5 working days): US$ 12,000 (annual fee)

Data Protection

The data protection notification is part of the process of registering a new entity in the DIFC. The costs involved are as follows:

1. Registration - US$ 1,250

2. Annual renewal – US$ 500

Office spaces

Every entity registered in the DIFC is required to lease a physical office. You can choose from the Gate and surrounding buildings, or other buildings within the DIFC, such as Emirates Financial Towers, Central Park, Park Avenue, Burj Daman and Currency House.

Prices vary, depending on the space availed and the building. Here is an indication of the prevailing rates:

1. DIFC Business Centre – from a two-desk office at US$ 35,000.

2. DIFC Fitted Offices – from US$ 55 per square foot.

3. Other buildings – from US$ 32,000 per annum

Visas

1. Establishment Card Application – US$ 630

2. PSA Deposit – US$ 682

3. Visas (per visa) – from US$ 1,500

4. PSA Deposit (per visa) – US$ 682

Visas are issued based on office space availed, and are usually calculated at 80 sq.ft. per visa. 

 

Our Services

We provide turnkey services for  DIFC Category 3A Investment Advisory Licenses. From inital consultations, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the DFSA Rulebook and submit an application that is comprehensive, complete and compliant.

Our services include assistance in:

• Reviewing the business model and advice on the applicable regulatory framework;
• Preparation of the Regulatory Business Plan and comprehensive financial projections;
• Preparation of all policies, processes and manuals required;
• Provision of Outsourced Compliance Officer and Outsourced Finance Officer services;
• Finalising the legal structure, including holding company setup and customisation of Memorandums; and
• Finalisation of leased space, bank account opening and obtaining Financial Services Permissions.

We also assist such teams with corporate and commercial documentation through our legal consultancy - 10 Leaves Legability. We assist in the drafting of:

  • Founder agreements
  • Shareholder agreements
  • Investor agreements
  • Share vesting/ESOP plans
  • Client/Supplier/Distributor agreements
  • Employment agreements

 We also provide services in Luxembourg, Saudi Arabia and Mauritius. 

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