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Global Distribution Part II: Middle EastNatalie Boyd, Partner, Dubai

8 July 2014

AGENDAA. Differences in approach between Middle East

jurisdictionsB. Impact of 2014 UAE Investment Management

Regulation on non-UAE managersC. Overview of proposed introduction of Qualified

Investor Exempt Funds in the DIFCD. Overview of proposed amendments to Investment

Funds Regulation in Saudi ArabiaE. Q&A

A. Differences in approach between Middle East jurisdictions

Key jurisdictions: Gulf Co-operation Council Countries (UAE, Saudi Arabia, Qatar, Kuwait, Bahrain,

Oman)

Surge in market volumes since inclusion of UAE/Qatar in MSCI Emerging Markets Index (May 2014)

Common anomalies: Legal and regulatory regime is essentially the same across the region Having a corporate presence in one jurisdiction passports your activities across the

region Tolerated practice is accepted across the region hence no need for foreign

managers to be licensed Foreign managers are immune from sanction for unlicensed activities

A. Differences in approach between the Middle East jurisdictions

Tips to avoid regional regulatory issues: Conduct local due diligence before you market/distribute Confirm with the client the products that you are planning to distribute before you

market/distribute Take legal/regulatory advice with regard to each jurisdiction Train your sales and marketing teams

Cross-border sanctions: MoUs between regional and international regulators for exchange of information on

securities offenders Reputational damage - list of securities offenders is available to clients and

competitors Firm will appear on the radar screen of multiple regulators even if breach occurred

in one jurisdiction Physical detainment/fines

B. Impact of 2014 UAE IM Regulation on non-UAE managers

Overview of the Investment Management Regulation: Scope of application - geographical and product coverage Requirement to establish/act through ESCA licensed UAE corporate presence Specific criteria for establishing a licensed UAE corporate presence Irrelevance of location of asset management outside UAE Tolerated practice no longer applies to the marketing/conduct of IM activities Exemption : government owned entities Informal exemption for reverse solicitation

B. Impact of 2014 UAE IM Regulation on non-UAE managers

Reverse solicitation The concept of reverse solicitation The practicalities of reverse solicitation

Follow up from initial meetings - emails/distribution of marketing materials

Reverse solicitation letters Marketing materials disclaimers/selling restrictions Safeguarding written confirmation of reverse solicitation

C. Overview of proposed introduction of Qualified Investor Exempt Funds in the DIFC

DIFC Funds Regime overhauled in 2010: DIFC fund managers permitted to manage funds outside the DIFC Foreign fund managers permitted to establish and manage domestic funds without DIFC

presence Marketing of foreign funds in/from the DIFC expanded Fund manager application fees reduced from USD 40k to USD 10k Introduction of Exempt Funds regime - Professional Clients; lighter regulation; USD 50k

minimum subscription amount; 100 or less unitholders; private placement only

Drivers behind proposes 2014 changes: Significant untapped tax/international treaty/land ownership (REITs) benefits for investors DIFC population grew by 14 % in 2013; still only 9 funds in the DIFC Large volumes of waiver applications; Exempt Funds proving too inflexible Failure to compete with established jurisdictions - Cayman, Luxembourg, Ireland - with more

types of funds DFSA conducted benchmarking exercise - results showed DIFC is too expensive; too highly

regulated; too inflexible DFSA set to narrow gap by introduction of Qualified Investor Exempt Fund (QIEF)

C. Overview of proposed introduction of Qualified Investor Exempt funds in the DIFC

Key parameters for proposed QIEF category 50 or fewer Unitholders Units offered only by way of private placement Offered to Professional Clients only Minimum subscription of at least USD 1,000,000 Fund manager must be DIFC licensed

Additional benefits More flexibility in appointment of custodians Less stringent filing requirements Processing time reduced from 17 to 4-6 weeks

D. Overview of proposed amendments to Investment Funds Regulation in Saudi Arabia

Overview of current 2006 Investment Funds Regulation Strict regulation by the Capital Market Authority Foreign managers can only offer units on a PP basis and by a CMA authorised

person, unless offeree is exempt Public funds have to be approved by CMA and offered by authorised person Private placements restricted to 200 sophisticated investors on 12 month basis

Drivers behind proposed amendments Restructuring of CMA - New CEO, Mohammed Bin Abdulmalik AlSheikh Drive to open up to foreign investment Additional regulation set for FDI in Saudi equities (90% retail market)

D. Overview of proposed amendments to Investment Funds Regulation in Saudi Arabia

Key parameters for amendments Definition of sophisticated investor expanded Restriction on offering to 200 investors during 12 month period removed Formal confirmation of marketing of foreign funds permitted on PP basis via

authorised person

Potential pitfalls No removal of authorised person as distributor - increased operational

costs/competition since there are few CMA authorised distributors No specific private placement regime for sophisticated investors - increased

compliance burden/cost

Questions

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