Businesses in UAE are expected to use a ‘substance over form’ approach to determine whether or not they undertake a Relevant Activity and, as a result, are within the scope of the Regulations. This determination would require the business to not only consider the activities stated under their commercial license or registration certificate but also to assess the activities carried out during a financial period.
Investment Fund Management Business
The definition of an Investment Fund Management Business encompasses Licensees that provide discretionary investment management services in relation to domestic or foreign “Investment Funds”.
Discretionary Investment Fund Management services include making investment, divestment, and risk related decisions on behalf of an Investment Fund. UAE businesses providing fund administration, custodian, investment advisory, and other Investment Fund related services are not considered engaged in an Investment Fund Management Business.
The Investment Fund itself is not considered an Investment Fund Management Business unless it is a self-managed fund (the Investment Manager and the Investment Fund are part of the same entity).
Where an Investment Fund is structured as a partnership and has both a corporate General Partner and an Investment Fund Manager, only the Investment Fund Manager would be subject to the Regulations if the General Partner does not undertake business activities separate from its role as General Partner of the Investment Fund.
Core Income-Generating Activities of an Investment Fund Management Business
The Regulations mention the following CIGAs for an Investment Fund Management Business:
- Taking decisions on the holding and selling of investments –This CIGA involves the independent consideration, deliberation and making of investment and divestment decisions. A licensee that is merely implementing decisions of another entity with respect to the holding and selling of investments without independent evaluation before taking steps or decisions to affect the investment or divestment decisions taken, does not perform the CIGA. It is a commercial reality that the directors or members of an investment committee may not all be based in the UAE or be physically present in the UAE when investment and divestment decisions are taken. However, for this CIGA to be seen as taking place in the UAE, the majority of those making the decisions should be physically present in the UAE when the decisions are made.
- Calculating risk and reserves –Managing an Investment Fund involves identifying, measuring, monitoring, and controlling risks attributable to the Investment Fund’s operations and investments. This CIGA refers to activities in respect of risks for the Investment Fund as a whole, as opposed to isolated risk calculations for one area of applicable risk that does not consider all relevant risks applicable to the Investment Fund and the reserves required on a holistic basis.
- Taking decisions on currency or interest fluctuations and hedging positions –This CIGA refers to the activities required to determine if the Investment Fund is exposed to, or if it is in the best interests of the Investment Fund to enter into, hedging arrangements against currency or interest fluctuations, and taking relevant decisions regarding those determinations. As with the other CIGAs, the Investment Fund Manager is expected to perform this activity on a holistic basis, considering the Investment Fund’s overall position. Isolated decisions involving specific investments are not sufficient to meet the CIGA requirement.
- Preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business –This CIGA does not require the Licensee to perform the administrative task of compiling the various routine annual or quarterly reports. However, the Licensee is expected to oversee this work from the UAE and to ensure the necessary systems and processes are in place, including the contractual arrangement with any third-party administrator. The Licensee is also expected to have the ultimate responsibility for the reporting, and to have the necessary understanding and knowledge to accurately convey the position of the Investment Fund(s) at any time.
How BSA can help you
Bader Saleh Auditing of Accounts can assess if the entities and activities are within the scope of the economic substance regulations and/or whether the entity can benefit from any of the exemptions in the Regulations.
We can carry out a gap analysis that represents the current substance and corporate governance processes against what is required under the regulations.
We can support you in the preparation and submission of your annual notifications and economic substance report to the Regulatory Authorities.
Connect with our team at +97145707357 or send us an email at info@bsauditing.com.
