As the instability in the financial markets of the world continues, a larger number of financial services providers are looking to the Middle East region to tap into the capital reserves of the region. While not all banks and financial institutions would seek to expand into the region at this point in time, there is growing interest in marketing existing products on a cross border basis within this region.

Dubai in the United Arab Emirates is a particularly attractive geography. Within Dubai, the Dubai International Financial Centre ("DIFC") is a financial free zone having its own commercial and civil laws distinct and separate from the laws governing the rest of the UAE. In essence, there are two separate jurisdictions in the UAE: the DIFC, where financial services are regulated by the Dubai Financial Services Authority ("DFSA"), and (ii) the UAE (excluding DIFC), where the provision of any financial services is regulated by the Central Bank.

This article seeks to provide guidance on the marketing of products and services into the DIFC on a cross border basis. The ability to market financial products into the DIFC does not automatically authorise or enable an entity to market or promote products or services in the rest of the UAE and any entity looking to do so would need to comply with the separate laws of the UAE in order to market financial products in the UAE.

The financial services regulator in the DIFC, i.e. the DFSA, has introduced provisions in its rulebook on 'Financial Promotions' which enables limited marketing on a cross border basis without the requirement of licensing by the DFSA.

The DIFC Regulatory Law, 2004 (the "Law") describes a "Financial Promotion" as:
"Any communication, however made, which invites or induces a Person to:

  • enter into, or offer to enter into, an agreement in relation to the provision of a financial service; or

  • exercise any rights conferred by a financial product or acquire, dispose of, underwrite or convert a financial product."

A Financial Promotion may be made in any manner or form including, but not limited to, an oral, electronic or written communication and includes an advertisement or any form of promotion or marketing. Communications may be through personal visits, telephone calls or any other means of communicating with persons within the DIFC. 

Under the Law, no person shall make a Financial Promotion in or from the DIFC unless the person is an Authorised Firm (i.e. duly licensed by the DFSA) or the Financial Promotion (i.e. such activities or communications as described above) qualify as Exempt Financial Promotions. The details of Exempt Financial Promotions are explained below.

Exempt Financial Promotions

As per the DFSA Rules, a communication is an "Exempt Financial Promotion" if it is:
(a) approved by any Authorised Firm (i.e. an entity regulated and licensed by the DFSA); or

 directed at and capable of acceptance exclusively by a person who appears on reasonable grounds to be a Professional Client; or 

(c) made to a person in the DIFC (the "Recipient") as a result of an unsolicited request by the Recipient to receive the Financial Promotion; or 

(d) made or issued by or on behalf of a government or non-commercial government entity; or

(e) made in the DIFC by a Person in the course of providing legal or accountancy services and which may reasonably be regarded as incidental to and a necessary part of the provision of such services.

Therefore provided the marketing meets the requirements of an Exempt Financial Promotion, any person located outside the DIFC may market products into the DIFC without the requirement of obtaining a DFSA license for such marketing.
 
Note that as long as one of five points (i.e. from amongst (a) to (e) above) are satisfied, the promotion would qualify as an Exempt Financial Promotion. Options (a) to (c) above are the most widely used to market into the DIFC. A few additional details on these three options are set out below:

(a)   Financial Promotion approved by any Authorised Firm

This option may be used where the foreign entity proposing to market into the DIFC has a licensed branch or group company in the DIFC or an agreement or tie up with a third party licensed entity in the DIFC. If such a DFSA regulated entity approves the Financial Promotion, the foreign entity will be able to make such a financial promotion in the DIFC.  However, there are rules that the DFSA regulated entity must abide by prior to approving such a financial promotion and all promotional material would need to name the DFSA regulated entity and state that it has approved the financial promotion. The DFSA regulated entity will also be accountable to the DFSA for the content of the financial promotion and due to this accountability, it is not often that this option is utilized in the DIFC.

 The Financial Promotion is directed at and capable of acceptance exclusively by a Person who appears on reasonable grounds to be a Professional Client

In the event the product being promoted or marketed is capable of being accepted by a retail client, the Financial Promotion will not be an Exempt Financial Promotion. As long as the Financial Promotion is directed at Professional Clients only, and is capable of being accepted only by Professional Clients, any person from outside the DIFC may make such a Financial Promotion in the DIFC.

We find that this is the most widely used option for foreign financial institutions to market products into the DIFC on a cross border basis, thereby ensuring that their financial promotions meet with the Exempt Financial Promotions criteria.

(c)  The Financial Promotion is made to a person in the DIFC (the "Recipient") as a result of an unsolicited request by the Recipient to receive the Financial Promotion

In the event a person/ proposed client  in the DIFC ("Recipient") requests a foreign entity to market or make a Financial Promotion to such Recipient on an unsolicited basis, such a Financial Promotion will be considered to be an Exempt Financial Promotion. It is important that the Recipient should have requested the Financial Promotion and that such request be unsolicited.

Any entity proposing to market and promote products and services into the DIFC on a cross border basis must ensure that any Financial Promotion it makes in or from the DIFC:

  • is clear, fair and not misleading;

  • includes the person's name, address and regulatory status; and

  • if it is intended only for Professional Clients:
    o is not sent or directed to any person who appears on reasonable grounds not to be a Professional Client; and
    o contains a clear statement that only a person meeting the criteria for a Professional Client should act upon it, and

  • does not attempt to limit or avoid any duty or liability under the DFSA administered laws.

The main point to note with respect to marketing into the DIFC is entities that are not regulated by the DFSA are specifically prohibited from providing any financial advice or recommendations. There is a fine line between making a Financial Promotion and providing advice and it would be prudent for foreign entities to seek professional advice on the issue prior to making any Financial Promotions into the DIFC or marketing any material in the DIFC.

Please be aware that the DFSA has stated in its rules that if a person makes Financial Promotions into the DIFC on a regular basis (i.e. anything more than occasional) or for a prolonged period (i.e. anything more than 3 consecutive days) while physically located in the DIFC, for example, by way of setting up a booth, meetings or conference in the DIFC, the DFSA may consider such activities as constituting Financial Services in the DIFC which require licensing by the DFSA and would likely invite sanctions from the DFSA if conducted without such a license.

Please also be aware that the DFSA has specific additional rules in respect of listed securities and funds which would need to be considered prior to making any promotions in respect of such financial products.

The views expressed in this article do not necessarily constitute the views of Zawya.

© Al Tamimi & Company 2012