DIFC Licensing categories

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 center between the leading financial centers 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?

DIFC is one of the world’s top eight 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 Middle East, Africa and South Asia region, which comprises 73 countries with an approximate population of 2.9 billion and a nominal GDP of US$ 9 trillion.

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.

DIFC is home to the region’s largest financial ecosystem of more than 29,900 professionals working across over 4,200 active registered companies.

This makes up the largest and most diverse pool of industry talent in the region.

How does the DIFC operate?

The DIFC Authority oversees all non-regulated businesses in the DIFC. They act as the liaison between the regulator, the Leasing facilities and the Registrar of Companies. They also serve as facilitators, bringing in firms that wish to do business in the region.

The DIFC Courts handle all civil disputes. These are English Courts, and work independent of UAE law for all civil matters.

The DIFC Arbitration Centre deals with disputes that are to be settled under arbitration

The Dubai Financial Services Authority, or DFSA, regulates all authorised firms, Single Family Offices, DNFBPs and Authorised Individuals. It is the independent regulator of financial services conducted in or from the DIFC.

What is the role of the DFSA?

The DFSA is the independent regulator that authorises and supervises all financial service firms in the DIFC. It administers the various laws that form the legal framework, and has powers to enforce these Laws and the associated Rules that apply to all regulated participants within the centre.

In addition to regulating financial and ancillary services, the DFSA is responsible for supervising and enforcing anti-money laundering (AML) and counter-terrorist financing (CTF) requirements applicable in the DIFC.

In fulfilling its mandate as the sole independent financial services regulator for the DIFC, the DFSA performs a number of functions.

  • Policy and Rulemaking.
  • Authorisation.
  • Recognition.
  • Supervision.
  • Enforcement.
  • International Co-operation.

To summarise, the DFSA:

  • has Power to enforce the Law and Rules that apply to all regulated participants within the DIFC;
  • Strives to detect and prevent money laundering activities within the DIFC; and
  • Works closely with the UAE Central Bank for the prevention of money laundering activities.

What is an Authorised Firm?

An Authorised Firm is an entity that has Financial Service Permissions from the DFSA to conduct financial services from the DIFC.

And what is an Authorised Individual?

They are Individuals who carry out defined Licensed Functions within an Authorised Firm. They are usually linked to an Authorised Firm’s management, and/or the provision of its Financial Services. They are required to meet Fit and Proper criteria and expected to continue to meet Fit and Proper critera throughout the period of being authorised by the DFSA.

The list of Authorised Individuals include the Senior Executive Officer, the Finance Officer, the Compliance officer, the Money laundering reporting officer and the risk officer. There may also be senior managers such as portfolio managers, investment managers and chief technology Officers, who are considered critical to the functioning of the Firm, and hence are authorised by the DFSA by undergoing a process of submission and vetting of their qualifications and experience.

 
 

DIFC License 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.
 
A common misinterpretation is that a firm applies for a DIFC Category 3C or a DIFC Category 4 license. As described above, the activity defines the category, i.e. a company that wishes to engage in Asset Management, advisory and arranging activities falls in the Category 3C, by virtue of the highest activity of Managing Assets, even though advisory activities fall in category 4.
 

This does not however, automatically allow the firm to carry out all other activities that fall in Category 3C and Category 4. The firm would have to apply for specific activities and provide full details on each intended activity.

Category 1 activities – Banks

Base Capital – US$ 10 million

Capital Requirement – the higher of the Base Capital or the Risk-based Capital requirement plus applicable Capital Buffers.

Activities – Accepting Deposits, Managing an Unrestricted Profit-Sharing Account

Required appointments:

Category 1 firms are banks, 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 a majority of Independent Directors and robust governance policies

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.

Chief Risk Officer – Senior risk professional, can be from the parent entity.

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.

Internal Auditor - Senior and suitably qualified internal audit professional.

 

Category 2Market maker, provider of credit

Base Capital – US$ 2 million

Capital Requirement – the higher of the Base Capital, Expense-based Capital or the Risk-based Capital requirement plus applicable Capital Buffers.

Activities – Dealing in Investments as Principal, Providing Credit

Required appointments:

Category 2 activities are also considered high-risk activities, 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.

Internal Auditor - Senior and suitably qualified internal audit professional.

 

Category 3ABrokerage

Base Capital – US$ 500,000

Activities – Dealing in Investments as Matched Principal, Dealing in Investments as Agent

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.

For more information on the Category 3A Article Read here: DIFC Category 3A Brokerage License

 

Category 3BCustodian and Employee Money Purchase Schemes

Base Capital – US$ 4 million

Activities – Providing Custody (only if for a Fund), Acting as Trustee for a Fund, Operating an Employee Money Purchase Scheme, Acting as the Administrator of an Employee Money Purchase Scheme

Required appointments

As with other category firms, the DFSA 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 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.

 

Category 3C Asset Manager, Fund Manager, Issuer of Stored Value (Money Services)

Base Capital – US$ 500,000

Base Capital for Exempt Fund, Qualified Investment Fund Managers – US$ 70,000

Base Capital for VC Fund Managers – US$ 0

Activities – Managing Assets, Managing a Collective Investment Fund, Providing Custody, Managing a PSIAr, Providing Trust Services as a trustee of an express trust, Providing Custody (other than for a Fund), Providing Money Services (Issuing Stored Value)

Required appointments

As with other category firms, the DFSA 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 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. This role can also be outsourced.

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.

The CO and MLRO roles can also be outsourced in certain circumstances.

Internal Auditor - Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.

 

Category 3DMoney Service Businesses

Base Capital – US$ 200,000

Activities – Providing Money Services (other than Issuing Stored Value)

Required appointments

Since this is a new category of licensing, the DFSA 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 DIFC. At a minimum, the DFSA would like to see the following appointments:

Board of Directors – a well-organized, diverse Board with Non-executive 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 also be outsourced.

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.

The CO and MLRO roles can also be outsourced in certain circumstances.

Internal Auditor - Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.

 

Category 4Advising and arranging activities (non-discretionary)

Base Capital – US$ 10,000

Base Capital for Operating a Crowdfunding Platform or Money Transmission Services– US$ 140,000

Activities – Arranging Deals in Investments, Arranging Credit and Advising on Credit, Advising on Financial Products, Arranging Custody, Insurance Intermediation, Insurance Management, Operating an ATS, Providing Fund Administration, Providing Trust Services, Operating a Crowdfunding Platform, Arranging or Advising on Money Services

The DFSA 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 DIFC. At a minimum, the DFSA would like to see the following appointments:

Board of Directors – a well-organized Board with robust governance policies. The Chair would have to be a non-executive Director.

Senior Executive Officer (SEO) – Senior banking professional with over 10 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 also be outsourced.

Risk Officer – This position is usually outsourced, and not mandatory. 

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.

The CO and MLRO roles can also be outsourced.

Internal Auditor - Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.

 

Category 5Islamic Business

Base Capital – US$ 10 million

Activities – Operating an Islamic Business

 
 

DIFC Capital Requirements

The category of the license will determine the amount of capital required. The base capital requirement for a Category 4 firm is $10,000. This rises to $500,000 for a Category 3 firm, $2 million for a Category 2 firm and $10m for a Category 1 firm.
 
Capital waivers may be available to the DIFC 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 Planduring the application process, and so are mostly unique to the company that applies for the license.
 
The figures given below are for base capital only, and actual capital may vary depending on the business model and the associated expenses and risks. 
 
In general, for

(a) firms that hold Client Assets or Insurance Monies or act as the Administrator of an Employee Money Purchase Scheme, 18/52;

(b) firms that carry out Insurance Intermediary activities and hold Insurance Monies but not Client Assets, 9/52;

(c) firms in Category 2, 3A, 3B or 3C (unless they hold Client Assets or Insurance Monies or act as the Administrator of an Employee Money Purchase Scheme), 13/52;

(d) firms in Category 3D, 9/52; or

(e) firms in Category 4, (unless they hold Insurance Monies), 6/52;

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.

Click here to read about the costs that are incurred when setting up a regulated entity in the DIFC.

 

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.

Specific Advantages:
 
Here are some specific advantages of establishing in the Dubai International Financial Centre:
 
Legal and Regulatory Framework:
 
1. The legal framework supports cross-border activities.
2. 100% foreign ownership permitted,
3. No restriction on foreign employees.
4. 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.
 
 
 
 
The DIFC Application Process:

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
 
DIFC Application Process
 

 

DIFC Application Process 1
 
 
 

 

Post-Setup Compliances:

Authorisation is only a footstep in the door – the first step in the lifecycle of a financial firm. The DFSA has comprehensive post-authorisation compliances that have to be adhered to, including quarterly prudential reporting, ongoing compliance and AML monitoring, risk management and corporate governance requirements

Our Services:

We provide turnkey services for applications in the DIFC. From initial consulting 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 post-authorisation services include compliance, finance and risk outsourcing, company secretarial services and accounting/bookkeeping services. We also engage in VAT and corporate tax reporting as part of the finance function.

Our training arm – 10 Academy, assists members of the Board and the senior management of authorised firms to familiarize themselves with the DFSA and DIFC regulatory framework and with   their Continuing Professional Development requirements as set out by the DFSA.

Our services include assistance in:

(i.) Reviewing the business model and advice on the applicable regulatory framework;

(ii.) Preparation of the Regulatory Business Plan and comprehensive financial projections;

(iii.) Preparation of all policies, processes and manuals required;

(iv.) Provision of Outsourced Compliance Officer, Outsourced Risk Officer and Outsourced Finance Officer services;

(v.) Provision of Company Secretary and advise on sound Corporate Governance;

(vi.) Finalising the legal structure, including holding company setup and customisation of Memorandums; and

(vii.) Finalisation of leased space, bank account opening and obtaining Financial Services Permissions.


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Also learn about DIFC / DFSA Innovation Testing License, Read here: https://10leaves.ae/publications/difc/difc-innovation-testing-license-dfsa-innovation-testing-license

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