Representative Offices in the DIFC

The financial services industry is growing at a rapid pace in the region. The Dubai International?Financial Centre (DIFC), is at the forefront of this change. Ranked among the top 10 onshore?financial centres worldwide, the DIFC is arguably THE place to be for financial service?companies looking at targeting not just the UAE, but the whole MENA region. Setting up a?representative office in DIFC is one of the ways of testing the waters, before deciding on taking?on a full-fledged license.

What is a DIFC Representative Office?

The?DIFC?offers a low-cost alternative for firms that wish to explore the market. It allows for the?marketing of one or more financial services or financial products which are offered in a?jurisdiction other than the DIFC. These products are usually of a head office that is based in a?different jurisdiction.

Why setup in the DIFC?

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The DIFC is a leading financial hub in the region for business, fintech, and lifestyle.?DIFC?holding companies?can be used to hold assets within the UAE, the GCC, or anywhere else in?the world. These include real property and shares in other companies in the UAE and?worldwide. Here are some reasons why setting up a holding company in the DIFC is a viable?proposition.

Codified English Common Law:?

The DIFC offers a codified version of the English Common Law, which gives foreign investors?an additional sense of security and stability. In partnership with the common law framework, the?Dubai Financial Services Authority (DFSA) functions as the DIFC’s regulatory body and plays a?crucial role in providing as well as enforcing the international regulatory standards that make the?financial hub a popular destination for businesspeople. While a DIFC holding company is not?regulated by the DFSA, the robust regulatory structure of the Authority gives comfort to?investors.

Premium Jurisdiction:

The DIFC is well regarded in the international community, being voted among the top 10?onshore financial centres worldwide. It’s emphasis on regulation, and visibility in the investor?community, also helps to attract further investments down the road.

DIFC Courts:

The DIFC Courts initiative was the first of its kind in the region, and the laws establishing the?DIFC Courts were designed to ensure the highest international standards.?The DIFC Wills & Probate Registry, allows eligible individuals the ability to register their wills?under Common Law, and hence providing the ability for legacy planning within the centre.

Visa Services:

?A Representative Office in the DIFC is meant to be an operational entity. These entities can?apply for visas for their staff and their families.

The Government Services Office in the DIFC is dedicated to providing a wide range of?administrative services, and one of this is the issue and renewal of employment visas. The?maximum number of visas you can apply for will depend on both the type of business you plan?on setting up as well as the size of the premises you lease in the DIFC.

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DIFC 2.0:?

The DIFC is set to undergo significant expansion, and plans to use the additional space to?construct more office and creative spaces, residences, retail spaces, and entertainment. That’s?13 million square feet of space dedicated to the pursuit of fintech and innovation, and designed?to accommodate the needs of professionals from around the world.

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Such an environment helps attract good talent from the world over. Over 38,000 professionals?already live and work in the DIFC.?Holding companies in the DIFC?are able to source better?managers and analysts, and access a pool of premium service providers within the centre, thus?making it a self-containing ecosystem.

What are the advantages of setting up a DIFC Representative Office?

?Obtaining authorisations to conduct financial activities from the DIFC involves a detailed and?structured process. It usually takes anywhere between 4-6 months to obtain a license, and an?investment of substantial capital, leasing of suitable office space and other costs such as?licensing and legal structuring at the DIFC Registrar of Companies.?In short, one has to be sure of the feasibility of such an office, since it involves the investment of?considerable monies and time.

Some firms, especially those that are exploring the UAE as a new jurisdiction, or are unsure of?the potential of their products in the market, may prefer setting up a?representative office in the?DIFC, to begin with. The authorisation process, although processed by the DFSA, is relatively?simplified keeping in mind the lower risks associated with operating such a setup. Costs for?licensing are significantly lower as well.

?Representative office setups may also be preferred in cases where firms just want to promote or?market their products, and not engage in client-facing activities.

My firm is regulated by a Self-Regulatory Organisation (“SRO”) and not by a Financial Services Regulator in its home state. Can I apply to be a Representative Office?

?Yes – the parent company will have to demonstrate equivalence in regulation and supervision – possibly through an Equivalence Report.

My firm is based in another emirate in the UAE and regulated by another UAE-based regulator. Can I open a representative office in the DIFC?

No. The Rep office structure is meant to be for firms that are not present in the UAE, and hence wish to establish a presence in the country.

What activities can be performed by a DIFC Representative?Office?

The?Representative Office in the DIFC?cannot engage in client-facing activities. It cannot on-?board clients, nor carry out any services other that marketing and promotion of the products or?services of its parent.

Marketing activities involve the following:

(a) providing information on the financial products or financial services of its parent?company;

(b) engaging in promotions in relation to (a);

(c) making introductions or referrals in connection with the offer of financial services or?financial products.

a Representative Office cannot represent anyone other than itself, its parent firm or a member?of its Group.

What does the DFSA consider “financial services” and “financial products”?

A financial service includes any activity that is considered a financial service in the DIFC and in the jurisdiction where the service is provided by the parent company or group company.

A financial product ?is limited to what would be considered an Investment, a Credit Facility, a Deposit, a Profit Sharing Investment Account, or a Contract of Insurance under the existing DFSA Rules.

DIFC Representative offices:

1. Cannot market the financial products or services of a firm that is not part of its group.

2. Cannot provide advice in regards to investments, credit or insurance.

3. Cannot have clients. 4. Cannot assist in completion of application forms for account opening or financial products. 5. Cannot market highly-leveraged products.

In cases where the Head Office or Group companies promote non-Group products or services, a Representative Office can make general references to third-party products or services that it provides access to through a Group company. However, the Representative Office must refrain from mentioning the names of any third-party providers, and it must not make any references to non-Group financial products or financial services in its marketing materials.

How do the permitted marketing activities of a Representative Office differ from providing advice?

The information that a Representative Office can give to a potential customer is limited to ‘general information’ about financial products or financial services offered by a related party. A firm ‘Advising on Financial Products’ can give advice to an investor or potential investor on the merits of that Person (either as principal or agent), buying, selling, holding, subscribing for or underwriting a particular financial product offered by any third party. This is advice, not just giving general information.

Advice differs from general information because the latter does not contain any view,?based on an assessment of the particular investor’s needs and circumstances, of the?merits of him buying, selling, subscribing for or underwriting a particular financial?product. Instead, general information contains only factual information and promotional?literature (such as product features and benefits) about the financial products.

Can the Representative Office distribute Investment Research?

A Representative Office wishing to distribute Investment Research will need to ensure that

• it does not contain advice on financial products or credit, which includes any recommendation, explicit or implicit, to buy, sell or hold a particular Investment.
• Where research is provided, it must include a clear warning on the face of the research that it is provided for information purposes only, that it should not be relied or acted on by the recipient, and that it is not a recommendation by the Representative Office for the recipient to buy, sell or hold a particular Investment.

Can the Representative Office distribute a Fund Prospectus?

If a Representative Office wishes to distribute a Fund Prospectus from its premises in the DIFC, it should ensure that in doing so it does not provide advice or arrange for the prospective client to buy or sell the relevant units/securities. The Prospectus should have a clear disclosure stating that the Prospectus is provided for information purposes only, that it should not be relied or acted on by the recipient, and that it is not a recommendation to buy, sell or hold a particular Investment.

Additionally, the Representative Office should also take reasonable steps to ensure that the recipient cannot otherwise assume that the Investment Prospectus is intended to be acted upon, for example, by removing from any Prospectus the associated subscription or?application forms.

Can the Representative Office market funds under it’s license?

Yes it can, subject to the funds meeting certain criteria, including requirements for the Fund Manager and custodian being licensed in a DFSA-recognised jurisdiction. There are also additional requirements to consider when marketing foreign funds in the greater UAE. We would encourage you to?get in touch with us?for detailed analysis and clarifications on this particular subject.

Can the Representative Office onboard Clients?

No. A Representative Office cannot have Clients, even if they are accredited/Professional or institutional Clients.

Can the Representative Office have ongoing relationships with individuals or institutions to whom it’s marketing activites are directed?

Generally speaking, marketing activities would not involve continuing relationships, however in some cases, multiple meetings may be required. While this is permissible, the Representative Office will have to be cautious to ensure that it does not inadvertently engage in a financial service such as advisory or arranging activities.

We would like our Representative Office to help our Clients fill out forms and forward these forms to us – is this permissible?

A Representative Office may not fill in or assist in filling in an application form for financial?products as this would amount to the Financial Service of Arranging Credit or Deals in?Investments or Insurance Intermediation and the Representative Office would be acting beyond the scope of its License in doing so.

The core business of a Representative Office is to make referrals or introductions to another Person and provide mere information on Group companies, services or products. Also, a Representative Office is prohibited from receiving and transmitting orders in relation to a financial product.

Accordingly, if it does provide a mailing service it will need to take reasonable steps to ensure that it does not breach this Rule.

Can a Representative Office market forex and other highly leveraged products of it’s parent company or group companies?

No.?The DFSA refers to such products as Restricted Speculative Investments, or RSIs. It considers these products as highly speculative and has prohibited marketing of RSIs from Representative Offices.

Are there any mandatory appointments for a DIFC Representative?Office?

Every Representative Office in the DIFC has to appoint a Principal Representative, who acts as?the liaison between the parent company and the DFSA. The Principal Representative has to be?resident in the UAE?in due course, i.e. before final licensing.

The DFSA ordinarily conducts an interview with the Principal Representative-designate before making it’s decision and issuing an In-Principal Approval.

What are the criteria that the DFSA uses to assess an application for Principal Representative?

The DFSA takes into account many considerations when assessing the fitness and propriety of a Principal Representative, including integrity, competence and capability, relevant qualifications, and financial soundness of the individual in question.

?Is there any restriction on the number of staff employed by the Representative Office?

No. The DFSA has not prescribed a maximum number of staff for Representative Offices.?This is because they expect the number of staff in any Representative Office to reflect, for example, the nature of the business of the Head Office and that of any Group companies. A large, multi-national entity with many Group companies may possibly need more representatives on the ground than a small single office entity.

However, the DFSA will closely monitor Representative Offices which employ, on a?permanent or temporary basis, a significant number of staff apparently out of?keeping with the limited marketing activities it is allowed to conduct.

Are there any rules for naming a DIFC Representative Office?

A Representative Office must be a branch and so its legal name will be the same as its Head?Office For example, a Representative Office of Disha Capital Limited would have to use the?trading name "Disha Capital (DIFC Representative Office)”.

Does the Representative Office have to appoint a Compliance Officer and/or a Money Laundering Reporting Officer?

No.

The Principal Representative is responsible for the day to day operation of the?Representative Office, including its compliance and anti-money laundering (“AML”)?obligations. In practice however, we have seen a Representative Office’s Head Office (or appropriate Group office) assisting the Representative Office in complying with its AML obligations. Alternatively, this support service can also be?outsourced to a competent service provider, such as 10 Leaves.

Can staff from the Head Office or group offices undertake marketing visits to the DIFC?

Yes, as long as visits by relevant Head Office or Group overseas staff to the Representative Office are:

• Temporary
• Occasional, and
• Limited to the activities the Representative Office is permitted to carry out under its Licence.

The Representative Office should ensure that the visiting overseas staff are fully aware of the relevant rules applying to the Representative Office when undertaking marketing visits to the DIFC.

This is to prevent any breach of those rules or the Financial Services Prohibition. The fact that the overseas staff may be authorized to carry out certain activities at the Head Office (or other Group company) does not mean they are authorized to perform those same activities in the DIFC. The scope of permitted activities is limited to what the Representative Office's Licence allows.

What are the reporting requirements?

The following reporting obligations are applicable:

1. Annual AML Return?– Completed annually and submitted within 4 months of the Representative Office’s financial year end.
2. Suspicious Activity Reports?(SAR) must be sent to the UAE Central Bank’s Anti-Money Laundering Suspicious Cases Unit (AMLSCU) and a copy should be forwarded to the DFSA. This is on an ad-hoc basis.
3. Collective Investment Rules Reports?- Representative Offices engaged in the marketing of Foreign Funds are required to comply with the CIR Rules. A CIR Form must be completed if the Representative Office is marketing Foreign Funds and returned to the DFSA within 4 months of the Representative Office’s financial year end.

Application Process

The DIFC application process commences with formal introductions to the DIFC and the DFSA. This is done through a Letter of Intent that is submitted to the DIFC, and a pre-application form that is submitted on the DFSA website. Once done, the DFSA arranges for a preliminary call to make introductions and invite the applicant to submit the detailed online application for Representative Office authorisations.

The KYC of the Group and associated forms of all key individuals are also part of this submission.

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 four and six weeks 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 Principal Representative designate, and conducts a detailed interview to assess fitness and propriety.

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 leasing office space, establishing the branch and processing the visa of the Principal Representative.

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 Representative Office is now authorised and can conduct marketing activities from the centre.

Does a Representative Office have to lease office space in the DIFC?

Yes, in order to have a place of business at the DIFC which is a mandatory requirement to register the branch office.

The DIFC has recently permitted Representative Offices to lease desk-spaces starting from US$ 2,000 per month with a four-visa option, which is excellent value for the price.

Of course, the Representative Office can choose to lease bigger spaces, as long as they are within the DIFC.

The Representative Office may be permitted to share space with a Group Company that is already established as an Authorised Firm, under certain circumstances. It will not be allowed to share spaces with any other Firm.

What are the costs associated with establishing a Representative Office in the DIFC?

The following costs are associated with the licensing of a Representative Office in the DIFC:

The DFSA is responsible for reviewing and approving all applications for financial services.?Generally, there are two components of DFSA fees. One – an application processing fee, and the other, an annual licensing fee.

1. DFSA Application Fee – US$ 4,000 (one-time).

2. DFSA License Fee – US$ 4,000 (annual).

The ROC helps to establish the legal structure of the Representative Office. This would be a branch license and costs for setting up include:

1. DIFC Application Fee – US$ 2,000 (one-time).

2. DIFC License Fee – US$ 4,000 (annual).

3. Leased space (Desk) – US$ 2,000 per month (with a four visa option, visa costs separate).

4. Leased space (offices) – from US$ 35,000 per annum.

Visa costs

1. Establishment Card Application – US$ 630.

2. PSA Deposit – US$ 682.

3. Visas (per visa) – from US$ 1,500 (2-year visa).

4. Refundable Deposit (per visa) – US$ 682.

What is the DFSA’s supervisory approach to Representative Offices?

The DFSA applies a light-touch regulation to Representative Offices, given their limited scope of operations. Ad-hoc visits and inclusion in relevant thematic reviews are part of post-authorisation supervision.

Conclusion

The DIFC Representative Office is an excellent structure that allows for international firms to test the waters in the region, and possibly pave the way for a larger presence subsequently. The UAE and the GCC in general, are fast-growing regions with increasing demand for sophisticated financial services, and setting up a Representative Office in the DIFC can be the first step towards building a solid client base here.

Get in touch!

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