With over 100 regulated firms currently licensed to operate in the Dubai International Financial Centre ("DIFC"), one must give credit to the Legal and Accountancy services, coming under the heading of "Ancillary Service Providers" which have helped in the establishment and registration of these companies and financial institutions.
Ancillary Services can only be carried out in or from the DIFC by persons or institutions that are registered and authorized by the Dubai Financial Services Authority ("DFSA") as an Ancillary Service Provider. With its objective of becoming the leading Financial Centre in the region, adhering to International standards and expectations, the DFSA undertakes a strict due diligence process on firms wishing to set up in the DIFC in order to ensure that the correct credentials, qualifications and corporate structure are in existence.
Accordingly, the rules governing the services and operations of an Ancillary Service Provider are primarily set out in the Ancillary Service Provider module ("ASP Module") which prescribes the Ancillary Services which may be carried on by an Ancillary Services Provider as well as the registration process and requirements to be complied with.
A firm providing Ancillary Services must be a body corporate or a partnership, formed under the Companies Law 2004 or General Partnership Law, respectively.
An Ancillary Service Provider can be formed either inside the Companies Law, Limited Liability Partnership Law or General Partnership Law, or alternatively, outside the DIFC but having a branch office in the DIFC that is registered with the DIFC Registrar of Companies.
Like all Companies and Financial Institutions setting up in the DIFC, Ancillary Service Providers are subject to DIFC Laws and Regulations, which are based on English Laws and any disputes arising are dealt with by the DIFC Courts.
In its initial inception, Ancillary Service Providers were registered to carry out a range of ancillary services which included providing legal services, accountancy services, market information services, compliance services, operating a local services office and operating a management office. Of these, only the first two have remained, and firms carrying out the remaining services that were previously considered as Ancillary Service Providers consequently had to become either regulated entities or nonregulated entities. The rationale behind this was to remove the unnecessary regulatory burden on the operators of compliance services, market information services and management offices. This is because these services are truly support services and by their very nature do not pose any significant risk on financial services provided in and from the DIFC.
Accordingly, the switch from Ancillary Service Provider to either a regulated or non-regulated entity was made feasible due to the expansion of services that could be offered by the various categories, however, it meant that those companies were potentially now subject to higher fees and capital requirements.
Contrary to widespread opinion, retail outlets being set up throughout the DIFC are not classified as Ancillary Service Providers. The various outlets, providing services ranging from, coffee shops, restaurants and print shops to hairdressers, pharmacies and spa facilities are instead classified as nonfinancial services and therefore do not have to comply with the stricter provisions of the ASP module when setting up.
However, despite the relaxation in the rules, it should be borne in mind that these retail outlets must still get DFSA approval before setting up.
The Ancillary Services currently defined in the ASP Module are as follows:
Legal Services
Providing legal services means the application of legal principles or judgment with regard to the circumstances of another person who is an Authorized Firm or Authorized Market Institution, including but not limited to:
giving legal advice or counsel to such a person as to his legal rights or the legal rights or responsibilities of others;
giving legal advice or counsel to such a person in relation to any DIFC law or legislation made thereunder;
drafting or completion of legal documents or agreements which affect such a person's legal rights;
representation of such a person in court proceedings or in an administrative adjudicative procedure in which legal pleadings are filed or a record is established as the basis for judicial review; or
negotiation of legal rights or responsibilities on behalf of such a person; but excluding acting as a lay representative authorised by an administrative agency or tribunal, serving as a judge, mediator, arbitrator, conciliator or facilitator; and participation in employment negotiations, arbitrations or conciliations.
Accountancy Services
Providing accountancy services means the application of accounting principles or judgment with regard to the circumstances of another person who is an Authorized Firm or Authorized Market Institution, including but not limited to the following:
per forming audit, examination, verification, investigation, certification, presentation or review of financial transactions and accounting records for such a person;
preparing or certifying reports on audits or examinations of books or records of account, balance sheets, and other financial, accounting and related documents for such a Person; or
advising such a person on matters relating to accounting procedure and the recording, presentation or certification of financial information or data, including financial information or data required by legislation applicable in the DIFC.
Restrictions and Requirements on Ancillary Service Providers
In carrying out its services, the Ancillary Services Provider must remain guided primarily by the ASP Module. This module contains a code ("ASP Code") which prescribes for even principles that need to be observed by an Ancillary Services Provider. The ASP Code has the regulatory status similar to that afforded to other rules of the DFSA and any breach of the same may subject an Ancillary Service Provider to disciplinary action and may indicate that it is no longer fit and proper to carry on an Ancillary Service or to be registered as an Ancillary Service Provider. In this case, the DFSA may consider and has the power to withdraw such Ancillary Services Provider's registration.
The Ancillary Service Provider may not carry on any Financial Services in the DIFC unless it is also licensed as an Authorized Firm, and the DFSA shall take action against any violations of this limitation.
The Ancillary Service Provider is further prohibited from establishing a relationship with a Shell Bank; establishing or keeping anonymous accounts or accounts in false names; or maintaining a nominee account which is held in the name of one Person, but controlled by or held for the benefit of another Person whose identity has not been disclosed to the Ancillary Service Provider.
Designated persons
The Ancillary Service Provider must nominate two Designated Persons. These people are individuals normally resident in the United Arab Emirates, and who act as a Principal Representative and an Anti Money Laundering Officer.
A prospective Ancillary Service Provider will not be granted registration unless it has the two designated persons in place.
Applicants registering as Ancillary Service Providers are assessed against fitness and propriety requirements which include but are not limited to integrity, management and financial soundness.
When the DFSA is considering an application for registration it will consider any matter which may harm or may have harmed the integrity or the reputation of the DFSA or DIFC. The DFSA will have particular regard to whether the firm, or anyone in a position of influence in or over it, has criminal convictions or been the subject of adverse findings by courts or regulatory authorities in the UAE or elsewhere, or is known to have engaged in dishonest or improper business practices.
Anti-Money Laundering and Ancillary Service Providers
The stringent requirements of the DIFC to combat Money Laundering are equally applicable to Ancillary Service Providers.
Strict measures have been implemented to ensure that companies have adequate policies, procedures, systems and controls in place to prevent the activity of money laundering. Money laundering is generally described as the process by which criminals attempt to hide or disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecution, conviction and confiscation of criminal funds. This includes the closely related subject of 'terrorist financing' and international efforts to locate and cut off the funding of terrorists and their organisations.
The Ancillary Service Provider must as a result designate an Anti Money Laundering Officer (AMLO), who will be directly responsible for the Ancillary Service Provider's compliance with applicable anti money laundering legislation.
Accordingly, an Ancillary Service Provider's anti money laundering policies, procedures, systems and controls should:
ensure compliance with the U.A.E. Law No.4 and any other relevant Federal laws;
enable suspicious customers and
transactions to be detected and reported;
ensure the Ancillary Service Provider is able to provide an audit trail of a transaction; and
comply with any other obligation in these Rules.
The Ancillary Service Provider's anti money laundering compliance arrangements should consist of policies, procedures, systems and controls and may also encompass appropriate anti money laundering programmes and strategies.
The Ancillary Service Provider should have a policy statement detailing the duties and obligations of its AMLO.
The Ancillary Service Provider should have specific arrangements to consider the fitness and propriety of its staff.
The arrangements should take into account criminal convictions, adverse findings by courts or regulatory authorities in the U.A.E. or elsewhere, or engagement in dishonest or improper business practices.
Under Article 3 of the U.A.E. Law No.4, the Ancillary Service Provider may be criminally liable for the offence of Money Laundering if such an activity is intentionally committed in its names or for its accounts.
If the DFSA is not satisfied in respect of anti money laundering compliance it may notify the Ancillary Service Provider that the DFSA will withdraw the Ancillary Service Provider's registration if it operates a branch or subsidiary in the relevant jurisdiction.
Ultimately, more and more Ancillary Service Providers will be setting up in the DIFC, and Companies and Financial Institutions will have a range of names and services to choose from. However, Al Tamimi & Company presence from the outset has allowed it to not only grow and develop with the DIFC and DFSA, as the laws and regulations are continuously changing, but has allowed it to build up its reputation, among clients, various regulators and key personnel within the DIFC in providing quality service. The firm has further had a significant role in addressing various gaps in the laws and regulations of the DIFC and has impacted on its development to date. It will be interesting to see the scope of work as this financial centre grows and progresses with time.
By Alia Dajani
© Al Tamimi & Company 2007
