irish funds distribution in asia and the middle east
TRANSCRIPT
S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L
Distribution in Asia and the Middle EastMARCH 2020
Irish Funds
Contents
2
China 3
Dubai International Financial Centre (DIFC) 5
Hong Kong 9
Japan 12
Qatar 14
Saudi Arabia 16
Singapore 18
United Arab Emirates 20
Contacts 23
China
Overview
Irish funds may not be marketed in the People's Republic of China ("PRC"), which for the purposes of this brochure excludes Hong Kong, Macau and Taiwan, by way of public offering or by private placement, with the exception of Eligible PRC Investors as defined below.
If a specific PRC offering document is prepared, such document will need to be submitted to the CBI in advance to ensure that there are no inconsistencies with the Irish prospectus.
In general, PRC law lacks an express legal basis for PRC nationals and PRC entities to make capital account on a cross border basis and correspondingly lacks the rules to regulate the offering and marketing of offshore fund products in the PRC1. Therefore, with limited exceptions, PRC investors are prohibited from investing in offshore fund products, including Irish funds. Foreign exchange restrictions applicable to Renminbi (“RMB”) also pose a barrier for PRC investors to make such investments. Exceptions apply to certain qualified or permitted investors as follows:
● certain banks, trust companies, securities (including fund management) companies, insurance companies and retail fund management companies which have been approved by their relevant regulators as a Qualified Domestic Institutional Investor ("QDII") and have also been granted a foreign exchange investment quota for making such investments; and
● sovereign wealth funds (and equivalent), including the investments of the China Investment Corporation (“CIC”), the State Administration for Foreign Exchange (“SAFE”), the National Social Security Fund (“NSSF”) and the China Insurance Investment Fund (“CIIF”).
(For the purpose of this brochure, QDIIs and sovereign wealth funds are collectively referred to as “Eligible PRC Investors”.)
Under certain local pilot programs, entities such as Qualified Domestic Limited Partnerships (“QDLP”) and Qualified Domestic Investment Enterprises (“QDIE”) may also be permitted to invest into offshore funds (including Irish funds). However, the fundraising and marketing of such local pilot programs are subject to a different mechanism (see below).
Investment by a QDII in Irish funds and the marketing and offering of Irish funds to such QDII are subject to the rules issued by the regulator of that QDII and the foreign exchange rules issued by SAFE, the PRC’s foreign exchange administration authority. In particular, it should be noted that there is no single set of rules which uniformly apply to all QDIIs, and that QDIIs which are banks (and trust companies) and insurance companies are additionally subject to the rules issued by the China Banking and Insurance Regulatory Commission (“CBIRC”)2 and QDIIs which are securities companies and retail fund management companies are separately subject to the rules issued by the China Securities Regulatory Commission (“CSRC”). When considering the investment by a QDII, it is therefore necessary to identify the type of QDII and its applicable regulator, and the rules and practice of that regulator.
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1 The latest proposed legislative update is the draft rule titled “Interim Regulations on the Administration of Privately-raised Investment Funds (Draft for Comments)”, which provides that “unless otherwise prescribed by laws and administrative regulations, foreign institutions shall not directly raise capital from domestic investors to set up privately-raised funds”. This specific provision, if promulgated, might effectively prevent offshore entities from carrying out marketing or selling activities outside or in the PRC targeting PRC investors, with only limited exemptions. This rule, if officially issued, would become the highest-ranking rule in the private fund sector with respect to the offering to QDIIs as Eligible PRC Investors. However, the current draft has not provided details of such restriction or any exemptions thereunder. The market will need to wait for more clarity in this regard when the final rules are issued.2 CBIRC was formerly the China Banking Regulatory Commission (“CBRC”) and the China Insurance Regulatory Commission (“CIRC”) before CBRC and CIRC were merged to form CBIRC.
The QDII regime is relatively new, and the framework for regulating the marketing and offering of Irish funds to a QDII is not set out in detail. It is therefore necessary to make informal, typically anonymous, enquires with the relevant PRC regulators to obtain their views and seek guidance as to the acceptable local market practice. However, given the informal and non-binding nature of such enquires, a definitive response is usually not possible, and the summary set out in this brochure should be regarded as guidance only. Further, this is an area where PRC laws, regulations, and regulatory practices are fast-evolving and it is important to review the position on a regular basis, in particular before conducting any specific marketing or offering activity.
Investment by sovereign wealth funds in Irish funds is subject to the rules of the relevant individual sovereign fund. Certain rules are available in relation to NSSF’s investment but the rules applicable to other sovereign wealth funds are not publicly available.
The local programs such as QDIE and QDLP are mostly used by affiliated asset managers for cross-border fundraising purposes. Under such programs, asset managers may need to form a PRC local fund manager and launch QDIE or QDLP products for raising RMB locally. Such products, in turn, will make overseas investments (usually in products managed by their offshore affiliates). The local fund manager needs to satisfy local regulators’ requirements and needs to be registered with the Asset Management Association of China. The offering and marketing of the QDIE and QDLP products also need to comply with similar rules applicable to domestic fund products.
Note that where a supplement or addendum specific to investors domiciled in the PRC is required, such document cannot conflict with the main prospectus and will need to be submitted to the relevant Irish regulatory authority, namely the Central Bank of Ireland (the “CBI”) in advance.
Public Offering
Except through the Mutual Recognition Funds scheme (“MRF”) between mainland China and Hong Kong any public offering of offshore funds, including Irish funds, is generally prohibited in the PRC.
Although there are no express legal provisions, the regulators indicate that the circulation of generic information to investors other than Eligible PRC Investors can be construed as a public offer or otherwise be regarded as in breach of the permitted rules and is thus prohibited. Generic information may only be circulated to Eligible PRC Investors as described above.
Private Placement
Although the PRC law has a framework for private placement of domestic securities, there is no private placement exemption applicable to Irish funds due to the general prohibition on the offering of offshore funds. The PRC law does not expressly create private placement-type exemptions for offshore funds.
It is possible to approach certain Eligible PRC Investors for investment in Irish funds as outlined above.
The marketing of offshore funds is regarded as prohibited except on a restricted basis and only to the limited categories of Eligible PRC Investors, within strict parameters.
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Dubai International Financial Centre (DIFC)
Overview
Irish funds may be marketed in the Dubai International Financial Centre (the “DIFC”) by way of public offering. There are no private placement exemptions.
If a specific DIFC offering document is prepared, such document will need to be submitted to the CBI in advance to ensure that there are no inconsistencies with the Irish prospectus.
Public Offering
Public offers of Irish funds are permissible. While the fund itself need not be registered or filed with any authority in the DIFC, any person who makes an offer of units in a fund of any type in the DIFC the must be appropriately licensed by the Dubai Financial Services Authority (the “DFSA”) to do so. Once a marketing entity holds the appropriate license it may market Irish funds, provided the marketing entity only markets to investors within the scope of its license and: (i) the fund qualifies as a designated or non-designated fund; or (ii) the marketing entity has a reasonable basis for recommending a fund as suitable to a particular client (i.e. a recommendation-based offer); or (iii) the fund is offered discretely to persons who are Professional Clients (see Private Placement section below) and the minimum subscription per investor is USD50,000.
Alternative investment funds (“AIFs”) and UCITS established in Ireland are considered to be designated funds. Non-designated funds may not be offered in the DIFC, even by a licensed entity unless the investment manager and custodian of the fund meet either a separate or combined criterion, the fund is investment grade rated by a credit rating agency, or the criteria in either (ii) or (iii) above are satisfied.
It should be noted that a promoter that is appropriately licensed by the DFSA for the promotion of funds will be restricted to conducting activities with ‘Professional Clients’ (See below), unless the promoter has obtained a ‘Retail Client Endorsement’ on its license.
A firm with an appropriately licensed branch in the DIFC should be able to market and sell Irish funds to investors in the DIFC by virtue of such license. Individuals marketing physically within the DIFC will be required to hold appropriate DIFC work permits. In order to avoid such a requirement, all marketing activities conducted by individuals which do not hold appropriate work permits should be done on a cross-border basis.
The registration or filing of a foreign fund is not required, but the authorisation of the marketer or offeror of the fund is. Funds need only be registered with the DFSA if they are established in the DIFC. There are currently very few funds domiciled in the DIFC and so most funds marketed in the DIFC are unregistered. The process for the marketing entity or offeror becoming authorised can be difficult and costly, but can easily be achieved by reputable firms with a track record. DFSA regulated firms are required to make an annual filing of all funds, including foreign funds, marketed by it and the basis upon which such funds were eligible for promotion.
Private Placement
No private placement exemptions exist. The full regime applies no matter who the interests in the fund are being offered to but see above in respect of the type of offers which can be made in the DIFC by an appropriately licensed entity. However, as mentioned above a distinction is drawn between offers to Professional Clients and offers to Retail Clients.
Most authorised firms in the DIFC have permission to market to Professional Clients but do not have a Retail Client endorsement on its license. As such, where a local licensed intermediary is used to market an Irish fund in the DIFC, it is likely to be able only to target Professional Clients.
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According to DFSA rules, a person may only be classified by a DFSA Authorised Firm as a Professional Client if such a person falls into one of the following categories of investor (all defined terms below shall have the same meanings given to them in the DFSA rules):
1. ‘Deemed’ Professional Clients
(A) A client will be considered a ‘deemed’ Professional Client if it is:
(i) a supranational organisation whose members are either countries, central banks or national monetary authorities;
(ii) a properly constituted government, government agency, central bank or other national monetary authority of any country or jurisdiction;
(iii) a public authority or state investment body;
(iv) an Authorised Market Institution, Regulated Exchange or regulated clearing house;
(v) an Authorised Firm, a Regulated Financial Institution or the management company of a regulated pension fund;
(vi) a Collective Investment Fund or a regulated pension fund;
(vii) a Large Undertaking as defined below;
(viii) a Body Corporate whose shares are listed or admitted to trading on any exchange of an IOSCO member country;
(ix) any other institutional investor whose main activity is to invest in financial instruments, including an entity dedicated to the securitisation of assets or other financial transactions;
(x) a trustee of a trust which has, or had during the previous 12 months, assets of at least USD10 million; or
(xi) a holder of a license under the Single Family Office Regulations with respect to its activities carried on exclusively for the purposes of, and only in so far as it is, carrying out its duties as a Single Family Office.
(B) A person is a Large Undertaking if it met, as at the date of its most recent financial statements, at least two of the following requirements:
(i) it has a balance sheet total of at least USD20 million;
(ii) it has a net annual turnover of at least USD40 million; or
(iii) it has own funds or called up capital of at least USD2 million.
(C) In reference to paragraph 1(B) above:
(i) A ‘balance sheet total’ means the aggregate of the amounts shown as assets in the balance sheet before deducting both current and long-term liabilities;
(ii) ‘own funds’ mean cash and investments as shown in the balance sheet; and
(iii) ‘called up capital’ means all the amounts paid-up on allotted shares, less any amounts owing on allotted shares.
2. ‘Service-based’ Professional Clients
(A) a person is a ‘service-based’ Professional Client if:
(i) the Financial Service provided to that person is Providing Credit;
(ii) the person is an Undertaking; and
(iii) the Credit Facility in question is provided for use in the business activities of:
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(a) the person;
(b) a controller of the person;
(c) any member of the Group to which the person belongs; or
(d) a joint venture of a person referred to in sub-paragraphs (a) – (c) above.
(B) In reference to paragraph 2(A)(iii)(b), a controller is an individual who:
(i) owns a majority of the shares of the Undertaking;
(ii) is able to appoint or remove a majority of the board members of the Undertaking; or
(iii) controls a majority of the voting rights of the Undertaking (or that of a Holding Company of the Undertaking).
(C) A person is a ‘service-based’ Professional Client if:
(i) the Financial Service provided to that person is ‘Advising on financial products or credit’ or ‘Arranging credit or deals in investments’; and
(ii) the service in 2(C)(i) is provided for the purposes of ‘corporate structuring and financing’.
(D) In 2(C)(ii), ‘corporate structuring and financing’:
(i) includes:
(a) providing advice relating to an acquisition, disposal, structuring, restructuring, financing or refinancing of a corporation or other legal entity; or
(b) arranging credit for a purpose referred to in 2(D)(i)(a); and
(ii) excludes any Advising on Financial Products, Arranging Deals in Investments or Arranging Credit and Advising on Credit, provided to an individual for the purposes of, or in connection with, the management of that individual’s investments.
(E) An ‘Undertaking’ in 2(B)(iii) means either a body corporate, partnership or an unincorporated association carrying on a trade or business, with or without a view to profit.
3. ‘Assessed’ Professional Clients
(A) an individual is an ‘assessed’ Professional Client if:
(i) the individual has net assets of at least USD1 million calculated in accordance with the DFSA’s prescribed assessment of net assets calculation3; and
(ii) either:
(a) the individual is, or has been, in the previous two years, an Employee in a relevant professional position of an Authorised Firm or a Regulated Financial Institution; or
(b) the individual appears, on reasonable grounds, to have sufficient experience and understanding of relevant financial markets, products or transactions and any associated risks, following the analysis set out in Rule 2.4.3 of the DFSA’s Rulebook’s COB Module.
(B) An Authorised Firm may classify any legal structure or vehicle, such as an Undertaking, trust or foundation, which is set up solely for the purpose of facilitating the management of an investment portfolio of an individual assessed as meeting the requirements in paragraph 3(A) above as a Professional Client.
73 Contained at Rule 2.4.2 of the Conduct of Business (COB) Module of the DFSA’s Rulebook.
(C) An Authorised Firm may also classify as a Professional Client another individual (the “joint account holder”) who has a joint account with an individual assessed as meeting the requirements in paragraph 3(A) above (the “primary account holder”) if:
(i) the joint account holder is a family member of the primary account holder;
(ii) the account is used for the purposes of managing investments for the primary account holder and the joint account holder; and
(iii) the joint account holder has confirmed in writing that investment decisions relating to the joint account are generally made for, or on behalf of, him by the primary account holder.
(D) In sub-paragraph (C)(i) above, a ‘family member’ of the primary account holder is:
(i) his spouse;
(ii) his children and step-children, his parents and step-parents, his brothers and sisters and his step-brothers and step-sisters; and
(iii) the spouse of any individual within sub-paragraph (D)(ii) above.
There is also an Exempt Financial Promotions route whereby funds can be promoted to those based in the DIFC on a limited basis without triggering a license requirement.
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Hong Kong
Overview
Irish funds may be marketed in Hong Kong by way of public offering or by way of exemption or private placement.
If a Hong Kong Covering Document or a specific Hong Kong offering document is prepared, such document will need to be submitted to the CBI in advance to ensure that there are no inconsistencies with the Irish prospectus.
The Securities and Futures Commission (the “SFC”) is the regulator of investment funds and fund managers in Hong Kong and the primary legislation is the Securities and Futures Ordinance (Cap 571) (the “SFO”).
Licensing
Under the SFO, it is a criminal offence for any person to carry on a business in Hong Kong or hold himself out as carrying on a business in a regulated activity, unless that person is licensed by or registered with the SFC. Financial institutions such as banks are primarily supervised by the Hong Kong Monetary Authority and will need to be registered with the SFC as “registered institutions” if they also engage in securities or futures related activities. All other persons carrying on regulated activities should be licensed by the SFC as “licensed corporations” or, in the case of individuals, be accredited to licensed corporations to engage in the activities as “licensed representatives”.
There are presently ten regulated activities set out in Schedule 5 to the SFO:
● Type 1 (dealing in securities);
● Type 2 (dealing in futures contracts);
● Type 3 (leveraged foreign exchange trading);
● Type 4 (advising on securities);
● Type 5 (advising on futures contracts);
● Type 6 (advising on corporate finance);
● Type 7 (providing automated trading services);
● Type 8 (securities margin financing);
● Type 9 (asset management); and
● Type 10 (providing credit rating services).
Marketing and fund distribution activity is normally Type 1 (dealing in securities) regulated activity. Cross border marketing and fund distribution activity into Hong Kong could trigger a licensing requirement. This is distinct from the applicable selling restrictions discussed below.
Public Offering
There is a general prohibition against marketing unauthorised funds (whether in corporate or non-corporate form) to the public. The marketing prohibition does not apply where unauthorised funds are marketed to persons located outside Hong Kong, provided that marketing materials are not distributed or an offer is not made/accepted in Hong Kong.
The opportunity to invest in interests in an Irish fund may be offered to the public only if the fund is authorised by the SFC.
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In order to make a public offer, a fund would need to be authorised by the SFC in accordance with Section 104 of the SFO and the Code on Unit Trusts and Mutual Funds (the “UT Code”). The fund manager would also have to be approved by the SFC. The fund manager does not need to be licensed, or have a presence, in Hong Kong, but must be licensed in a properly regulated jurisdiction. As part of the SFC’s review, it will consider the fund manager’s general experience, and specifically, experience in managing a retail fund. For a fund whose manager is not regulated in Hong Kong, the fund must appoint an SFC licensed corporation in Hong Kong to act as Hong Kong representative (in order to liaise with the SFC and Hong Kong based investors).
With reference to 1.2 of the UT Code, the SFC may accept that some schemes already comply in substance with certain provisions of the UT Code by virtue of prior authorisation in a regulated jurisdiction. Irish UCITS are recognised jurisdiction schemes. Applications for recognised jurisdiction schemes will generally be reviewed on the basis that the scheme's structural and operational requirements and core investment restrictions (except where noted in the UT Code) already comply in substance with the UT Code. The UT Code investment restrictions are disapplied for UCITS.
The authorisation procedure will be the same regardless of the structure of the fund. However, SFC will not generally authorise closed-ended funds unless such funds will also seek a listing on The Stock Exchange of Hong Kong Limited (the “SEHK”).
The documentation for an SEHK listing application can be prepared while the SFC authorisation application is in progress although a listing will be conditional on SFC authorisation.
The Hong Kong offering document must be provided in both English and traditional Chinese. In theory the SFC may waive the requirement that information must be provided in both languages on a case by case basis where it is satisfied that the fund will only be offered to persons who are fully conversant in the language in which it is intended to publish the offering document (however to counsel’s knowledge, this waiver has not been given since 1997).
Usually an external translator will be engaged by the fund manager to translate the offering document into traditional Chinese. Such costs will depend on the translator and the length of the offering document. If counsel were engaged to make the required certification of accuracy, counsel will then review the Chinese offering document on a standard charge out rate basis. The fees for an associate’s review of a Chinese offering document and issue of a certificate of accuracy (which is required by the SFC) are usually around HKD80,000 (c. USD10,200) but it depends on the length of the offering document and the quality of the translation.
Exemptions/Private Placement
The general prohibition referred to above prevents marketing to the public unless the fund is authorised by the SFC (see above) or within an exemption. It follows that an offer on a private placement basis is outside the scope of the prohibition. There is no statutory definition of a private placement but a discrete offer to a few pre-identified number of offerees is likely to be a private placement.
The main exemption relates to offers to professional investors.
There are two separate regimes governing the offer of securities under which the concept of a “professional investor” arises (allowing an offer to be made without regulatory approval): (i) under the SFO, and (ii) under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (the “C(WUMP)O”). By way of background:
● The SFO regime applies generally to all types of “securities” (which includes interests in “collective investment schemes”). The SFO applies in conjunction with the C(WUMP)O and prohibits any securities related advertisements directed at the public in Hong Kong (including oral communication) unless within a specified exemption. There is an express exemption for an offer of a fund which is only open to professional investors.
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● The C(WUMP)O regime will apply whenever the subject matter of the offer is “shares” or “debentures” issued by a corporation (close-ended or open-ended) and the offer is in writing. Under the C(WUMP)O, any written offer in respect of shares to the public in Hong Kong, if it constitutes a “prospectus”, must be registered with the Hong Kong Companies Registry (for which it must be vetted by the SFC for compliance with the contents requirements of the C(WUMP)O), unless the document is one relating to an offer of a type listed in the Seventeenth Schedule of the C(WUMP)O . If so, it is deemed not to be a “prospectus” hence not require registration.
The offers listed in the Seventeenth Schedule are these “safe harbours” in relation to corporate funds. The following summarises the key ones in addition to an offer limited to professional investors.
(A) An offer to less than 50 persons per fund in a 12-month period. Note that for this purpose, the number of offerees outside Hong Kong does not need to be taken into account; or
(B) An offer in respect of which the minimum subscription per investor for the shares is HKD500,000 (c. USD63,700) or in respect of which the total value of the issue/offer does not exceed HKD5,000,000 (c. USD637,000) will not constitute a public offering –
To rely on a Seventeenth Schedule safe harbour, the offering document must contain a warning statement.
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Japan
Overview
Irish funds may be marketed in Japan by way of public offering or by private placement.
In the case of a public offering, a Securities Registration Statement (yuuka-shoken todokede-sho) (“SRS”) must be filed by the Irish fund with the Kanto Local Finance Bureau of the Ministry of Finance Japan in advance of the offering. The SRS must contain all of the information that is required by the CBI and must not contain any information which conflicts with the Irish prospectus.
In the case of both a public offering and private placement, a registration of the fund as a foreign investment company (gaikoku-toushi-houjin no todokede) (“Foreign Fund Registration”), is required under the Law Concerning Investment Trusts and Investment Corporations (Law No. 198 of 1951; the “LITIC”).
Public Offering
Units in an Irish fund can be offered to the public in Japan if the fund files an SRS under the Financial Instruments and Exchange Law (Law No. 25 of 1948; the “FIEL”). The items set out in the SRS are mostly equivalent to those of a prospectus and must be filed unless the private placement requirements are complied with.
In addition to an SRS, a Foreign Fund Registration is also required except for, amongst others, the case where the shares are listed on a Financial Instruments Exchange (such as a stock exchange), since the shares would likely fall within the definition of “foreign investment securities” (gaikoku-toushi-shouken) under the FIEL and LITIC.
Private Placement
If the fund falls under any of the following categories, an offer of the shares would always be considered to be a public offer in Japan irrespective of the categories or numbers of investors approached:
(a) an issuer which has issued securities listed on a financial instruments exchange in Japan;
(b) an issuer which has issued securities traded on an over-the-counter market in Japan; or
(c) an issuer which has issued securities in respect of which an SRS, or a supplementary document to the shelf registration statement, has been filed in Japan.
In the event that the fund does not come under any of the above categories of issuer, an offer of the shares to Qualified Institutional Investors (tekikaku-kikan-toshika; a “QII”) would not fall within the definition of a public offer irrespective of the number of QIIs approached (private placement for QIIs); provided, however, that such QIIs must, as a condition of acquisition of the shares, enter into an agreement by which the QII undertakes not to sell the shares to a person who is not a QII.
A QII can satisfy this requirement by undertaking to this effect in the subscription documents for the fund.
The definition of QII (set out in the FIEL) principally consists of institutional investors that have a thorough knowledge of the market and includes financial institutions such as securities companies, banks, insurance companies, investment managers (only those registered for investment management business) and investment companies (toushi-houjin) and foreign investment companies (gaikoku-toshi-houjin).
Certain body corporates and high net worth individuals can be treated as a QII, provided that they satisfy certain criteria in relation to their investment experience and the volume of securities held and make a filing with the FSA to be treated as a QII (an application for which can only be made twice per year). When marketing to such investors, it may therefore be easier to rely upon the “49 investor limit” as set out below.
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The maximum number of potential investors who may be approached without constituting a public offering is 49 (the “49 investor limit”). However, no private placement is allowed if the fund falls within any of the categories described in (a) to (c) above. In counting the number of potential investors, the number of investors to whom an offer is made must be included (including those to whom an offer has been made in respect of securities which have been issued by the same issuer during the most recent six months and which are of the “same type” as the securities on offer), rather than counting the number of investors which purchase the securities as a result of the offer. The “same type” of securities means, in respect of shares in an investment company, shares which are equivalent to the relevant securities in respect of rights under the securities to the payment of dividends.
This means that the 49 investor limit applies per share class of the fund on a 6 monthly basis (where each share class grants different rights in relation to the payment of dividends). However, where the share class grants the same rights to dividends, the 49 investor limit will be aggregated across those share classes.
If QIIs are also approached, the number of QIIs approached would not be subject to the 49 investor limit as long as such QIIs, as a condition of acquisition of the shares, enter into an agreement by which the QII undertakes not to sell the shares to a person who is not a QII.
Even if an offer of the shares does not fall within the definition of public offer, there are a couple of notification requirements under the FIEL as follows:
Notification to investors
With respect to a private placement for QIIs, the person who makes the offer shall notify investors (by delivery of written notification) of the following, unless the total subscription amount for all investors in Japan is no more than JPY 100 million (c. USD1.1 million):
(a) an SRS has not been submitted in respect of the offer; and
(b) the offer is made on the condition that an investor who acquires the securities shall enter into an agreement by which the investor undertakes not to sell the securities to a person who is not a QII.
In addition to the above, a Foreign Fund Registration is also required except for, amongst others, the case where the shares are listed on a Financial Instruments Exchange (such as a stock exchange).
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Qatar
Overview
Irish funds may be marketed in Qatar under the Qatar Central Bank (“QCB”) and Qatar Financial Centre (“QFC”) regimes as detailed below. There are no private placement exemptions.
If a specific Qatar/QFC offering document is prepared, such document will need to be submitted to the CBI in advance to ensure that there are no inconsistencies with the Irish prospectus.
Public Offering
The term “public offer” has no meaning in either the QCB or QFC regulatory regimes.
The term is only known in connection with the offer of shares in a “public shareholding company” on the Qatar Stock Exchange. Such company must be majority owned by Qatari nationals or Qatari corporate or public entities. Consequently the public offer and private placement sections of this brochure should be considered together. By contrast, the term “private offering” is defined in the Qatar Financial Markets Authority Offering and Listing Rulebook of Securities (dated November 2010) (as amended) as an offering addressed to current securities holders or to potential buyers not exceeding 100 and without sending any invitation to the public.
Investment funds under the QCB regime are governed by the Law No. 25 of 2002 (the “Funds Law”) and the Ministerial Decision No. 69 of 2004 (the “Ministerial Decision”) which states at Article (2) “to obtain a license for the foundation of a fund, applicant should be a bank or an investment company with at least three years of business practice inside Qatar and its Articles of Association must permit managing and investing the funds or assets of others”.
The Funds Law and Ministerial Decision do not envisage the licensing of funds already established outside Qatar. There is currently no mechanism for this purpose.
QCB Regime
A marketing entity conducting cross-border marketing activities in respect of units in an Irish fund in Qatar is generally accepted without licensing or registration of the fund as long as the marketing entity does not have a physical presence in Qatar and the offer is conducted from outside Qatar. In practice, it would appear that if the offer is conducted by an entity without a place of business in Qatar, from outside Qatar, e.g. over the telephone, on a discreet basis, i.e. not solicited or if solicited the solicitation is done from outside Qatar, and is limited to a small number of sophisticated investors, it is unlikely that such a marketing entity would require a license nor would the fund require registration.
If a Qatari firm is engaged as an intermediary or sales agent, that firm or agent would need to be appropriately licensed to act in such a capacity by the QCB; the Irish fund however will not.
Given the breadth of the laws and regulations, it is still possible that the QCB or a Qatari court would conclude that the solicitation of individuals and/or institutions in order to sell financial products (particularly where visits were made) on a cross-border basis does constitute offering banking or investment services within Qatar. There is also a risk that the extent of any information provided may be considered “investment advice” which requires a license from the QCB. Accordingly, the advice of local counsel should be sought prior to any such offering.
QFC Regime
The QFC Regulatory Authority (“QFCRA”) Collective Investment Schemes Rules 2010 (as amended) (the “COLL”) provides for two types of funds (or schemes):
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(1) a fund being a collective investment fund that is established in the QFC and registered under COLL; and
(2) a foreign fund being a collective investment fund that is not established in the QFC (“Foreign Fund”).
We would anticipate that the funds marketed by the marketing entity, as mentioned above, would come within the Foreign Fund’s definition if a QFC authorised firm was engaged as broker/sales agent. According to rule 10.1.1 of the COLL, the QFCRA may declare that a Foreign Fund established in a stated jurisdiction that is of a stated type, is a “retail customer scheme”. If this does not happen, then the Foreign Fund is considered to be a “qualified client scheme”. In either case, a QFC authorised intermediary will need to comply with relevant QFCRA rules on the making of financial promotions, for example:
● it must not make or approve a financial promotion in relation to a non-QFC qualified client scheme if the financial promotion is addressed to, or disseminated in such a way that it is likely to be received by, a person who is not a qualified investor for the firm; and
● it must ensure that the scheme has a written constitution and written prospectus.
In this situation, a qualified investor is a person who is a business customer or market counterparty of the firm.
However, based on current policy considerations, the scope of authorisation of QFCRA authorised firms generally contains a standard restriction which prohibits such firms from conducting activities with retail clients without prior authorisation from the QFCRA. In the event that a QFCRA authorised firm wishes to do so, counsel anticipate that the QFCRA would generally recommend that the firm should first liaise with its QFCRA Supervision contact to specifically discuss what is proposed.
Private Placement
There is no specific private placement exemption available in Qatar for an offering of shares in an Irish fund.
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Saudi Arabia
Overview
Irish funds may be marketed in Saudi Arabia by private placement but not by way of public offering.
If a specific Saudi offering document is prepared, such document will need to be submitted to the CBI in advance to ensure that there are no inconsistencies with the Irish prospectus.
Public Offering
There is a general prohibition on the marketing of funds to the public. However, an Irish fund may be offered in Saudi Arabia on a private placement basis, provided private placement status has been duly applied for and obtained in respect of each fund marketed.
Private Placement
Provided certain formalities are complied with and a fund has been granted “private placement status” by the Capital Markets Authority (“CMA”), interests in an Irish fund may be offered on a private placement basis.
Subject to notification to the CMA, and satisfaction of the relevant conditions for a private placement, a private placement may be made to “Sophisticated Investors” (as defined below).
A “Sophisticated Investor” is defined as any of the following:
● the Government of the Kingdom of Saudi Arabia, any supranational authority recognised by the CMA, the Saudi Arabian Stock Exchange, any other stock exchange recognised by the CMA, or the Saudi Arabian Securities Depositary Center;
● clients of a person authorised by the CMA to conduct managing activities, provided that: (i) the offer is made through an authorised person (“Authorised Person”) (a list of Authorised Persons, essentially Saudi Arabian financial advisory firms, with contact details, is posted on the CMA’s website, www.cma.org.sa) and all relevant communications are made through such Authorised Person; and (ii) the Authorised Person has been appointed as an investment manager on terms which enable it to make decisions concerning the acceptance of the private offers of securities on the client’s behalf without reference to the client;
● CMA Authorised Persons acting for their own account;
● Investment Institutions4 acting for their own account;
● Professional Investors5;
● individuals registered with the CMA to perform functions that the CMA has specified to be performed by such appropriately registered persons, if an offer is made through the respective Authorised Person; and
● other persons as prescribed by the CMA.
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4 Defined in the CMA Glossary as: 1) any company which owns, or which is a member of a group which owns, net assets of not less than SAR 10m (approx. USD 2.67m); 2) any unincorporated body, partnership or other organisation which has net assets of not less than SAR 10m (approx. USD 2.67m); 3) any person (“A”) whilst acting in the capacity of director, officer or employee of a person (“B”) falling within sub-paragraphs (1) or (2) where A is responsible for B undertaking any securities activity.5 Defined in the CMA Glossary as: any natural person who fulfils at least one of the following criteria:1) has carried out at least 10 transactions per quarter over the last 12 months of a minimum total amount of SAR 40m (approx. USD 10.67m) on securities markets; 2) has net assets is not less than SAR 5m (approx. USD 1.33m); 3) works or has worked for at least three year in the financial sector in a professional position which requires knowledge of securities investment; 4) holds professional certificate that is related to securities business and accredited by an internationally recognised entity; or 5) holds the General Securities Qualification Certificate (CME-1) that is recognised by the CMA, and has an annual income that is not less than SAR 600,000 (approx. USD 160,000) in the two most recent years.
There no maximum number of potential investors who may be approached without constituting a public offering. Subject to notification to the CMA and satisfaction of the relevant conditions for a private placement, an offer can be made provided the minimum amount payable per offeree is not less than SAR1 million (c. USD266,700) or an equivalent amount in another currency.
All applications to the CMA for a foreign fund for a private placement registration, and subsequent offers of units in a foreign fund, other than in response to a reverse enquiry is restricted to be made by and through a CMA Authorised Person with a ‘Dealing as Agent’ license.
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Singapore
Overview
Irish funds may be marketed in Singapore by way of public offering or on a restricted basis via certain prospectus registration exemptions.
Any specific Singapore offering document or supplement that is required to be filed by the Irish fund with the Monetary Authority of Singapore (“MAS”) must contain all of the information that is required by the CBI and the MAS and must not contain any information which conflicts with the Irish prospectus.
References herein to “the Fund” are references to an open-ended collective investment scheme, and most closed-ended collective investment schemes constituted after 1 July 2013, constituted and managed outside Singapore.
The marketing or sale of Funds (including the provision of any financial advisory service in connection with the marketing process) in Singapore (whether in connection with a public offering or an exempt offering) may trigger a licensing requirement under the Securities and Futures Act, Chapter 289 of Singapore ("SFA") and/or the Financial Advisers Act, Chapter 110 of Singapore (“FAA”). In particular, such marketing of Funds is regulated as part of the regulated activity of dealing in capital markets products under the SFA. It is common for foreign managers to appoint Singapore licensed intermediaries to carry out marketing activities in respect of Funds.
To the extent that any financial advisory service is provided (in connection with any Fund or otherwise) that is not part of the marketing process, the provision of such financial advisory services is regulated under the FAA.
Public Offering
Interests in a Fund cannot be offered to the retail public in Singapore unless:
(1) the Fund has been recognised by the MAS for retail distribution under the SFA; and
(2) the offer is accompanied by a prospectus that is prepared in accordance with prescribed requirements under the SFA and registered with the MAS.
In addition, a Product Highlights Sheet must be lodged with the MAS together with the prospectus and provided to investors together with the prospectus before the sale of an interest in a Fund. The Product Highlights Sheet should comply with the requirements set out under the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (the “SFR”) and the Practice Note on the Product Highlights Sheet issued by the MAS dated 8 October 2018.
In determining whether to recognise a Fund, the MAS may have regard to whether the following, collectively or individually, afford to investors in Singapore protection at least equivalent to that provided by comparable local constituted authorised schemes under Singapore law: (a) the investment policy of the Fund, (b) the provisions contained in the trust deed or the constituent documents of the Fund, (c) the roles, responsibilities and powers of the trustee or a person in an equivalent authority, as set out in the trust deed or the constituent documents of the Fund, and (d) the laws and practices of the jurisdiction under which the Fund is constituted.
The MAS also imposes certain eligibility criteria on Funds, including:
● a requirement that the manager of the Fund be (a) licensed or regulated in the jurisdiction of its principal place of business and (b) a fit and proper person in the opinion of the MAS;
● a requirement that the manager (together with its related corporations) should have at least SGD500 million (c. USD363,190,400) under discretionary management in Singapore (this requirement will not apply where any units of the Fund have been approved for listing for quotation on an approved or overseas exchange and will be traded on an approved or overseas exchange); and
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● a requirement to have a Singapore representative for the Fund to carry out or procure the carrying out of certain prescribed functions under the SFA.
The MAS has also indicated that it shall only recognise a Fund if it is satisfied that, amongst other things, the Fund complies with investment guidelines which are substantially similar to those as set out in the Code on Collective Investment Schemes issued by the MAS (the “Code”).
The MAS is familiar with recognising Irish Funds that are constituted as UCITS.
Offering via Prospectus Registration Exemptions
There is no concept of a “public offer” in Singapore under the SFA. In Singapore, a prospectus is required for all offers of units in a Fund, unless the offer is one which is specifically exempted from prospectus registration requirements. In the present context, the three key exemptions that are typically invoked are:
(i) Exemption for Offers Made Only to “Institutional Investors” (Section 304 of the SFA) – where offers are made in Singapore to Institutional Investors. As the definition of Institutional Investors is fairly limited (generally central banks, central governments and certain licensed financial intermediaries), this exemption is usually used in conjunction with other exemptions available under the SFA;
(ii) Private Placement Exemption (Section 302C of the SFA) – Where offers in Singapore are made to no more than 50 persons in any rolling 12-month period, subject to certain conditions and aggregation rules. Please note that the 50-person limit relates to the number of offers made (i.e. persons approached, not the actual number of persons subscribing); and
(iii) Exemption for Offers made only to Accredited Investors and Certain Other Relevant Persons (Section 305 of the SFA) – Where offers are made only to Accredited Investors, certain other specified persons or persons who acquire the units in the Fund as principal at a consideration of not less than SGD200,000 (c. USD145,300 or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of units in a collective investment scheme, securities, securities-based derivatives contracts or other assets (Section 305 of the SFA). In order to rely on this exemption, the Fund is required to be notified as a “restricted scheme” via the MAS’ online notification system known as “CISNet”. The MAS typically takes two business days to process a notification.
On a separate note, when making offers to Accredited Investors, it should be noted that express opt-in consent must be obtained from persons who qualify as Accredited Investors before they can be treated as such. Such consent must be obtained in a manner compliant with the prescribed form and content requirements and accompanied by certain specified disclosures. In the absence of a valid opt-in consent, the person would be treated as a retail investor (with all the statutory protections afforded to retail investors) and it would not be possible to make an offer to such a person in reliance on the Exemption for Offers to Accredited Investors, as discussed above.
Persons who would qualify as Accredited Investors include, in respect of an individual, an individual whose net personal assets (where the value of the individual’s primary residence is calculated as the lower of SGD1 million or the estimated fair market value of the residence less any outstanding credit facility secured by the residence) exceed in value SGD2 million (or its equivalent in a foreign currency); whose financial assets (net of any related liabilities) exceed in value SGD1 million (or its equivalent in a foreign currency); or whose income in the preceding 12 months is not less than SGD300,000 (or its equivalent in a foreign currency) and in respect of a corporation, a corporation with net assets exceeding SGD10 million in value (or its equivalent in a foreign currency) or a corporation the entire share capital of which is owned by Accredited Investors.
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United Arab Emirates
Overview
Irish funds may be marketed in the UAE by way of public offering, (i) by registered private placement or (ii) by an exempt (and therefore unregistered) private placement. The former is where a private placement is being made to non-natural Qualified Investors (who are exempt) as well as natural Qualified Investors (which requires that the fund be registered for private placement accordingly). The latter will be where the fund would be only marketed to non-natural Qualified Investors. Such promotions are exempt from the requirements of the PIRs.
If a specific UAE offering document is prepared, such document will need to be submitted to the CBI in advance to ensure that there are no inconsistencies with the Irish prospectus.
By way of background, the UAE is a federation of seven Emirates (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain) (the "Federation"). The basic foundation for all law in the UAE is the Islamic Sharia ("Sharia"). The Federal Constitution expresses that the Islamic Shariah to be the principal source of legislation. Upon this foundation various federal laws (applicable throughout the Federation) and local laws (applicable exclusively in each Emirate) have been enacted governing civil and commercial transactions, contracts and legal procedures for each Emirate.
Information in this brochure is based primarily on the federal laws of the UAE as published in the Federal UAE Official Gazette. Emirate-specific laws are also published in the Offical Gazette of each Emirate. Laws and regulations are published and interpreted by the courts in Arabic. In preparing this note, counsel have relied on English translations of the relevant Arabic laws and/or regulations and we have not verified the accuracy of those translations.
There is no concept of binding judicial precedent in the UAE which means that the decisions of a court in one case will have no binding authority in respect of another case. Such decisions may, however, be persuasive. Whilst court reports do exist for the various courts across each Emirate, such information is often only available in Arabic, in some cases only available in printed format and not always easily accessible. Accordingly, it is not always possible to reach a conclusive interpretation on the laws of the UAE or how the UAE courts would view the offer of investment funds.
The offering of units in a mutual fund is a licensable activity regulated by the UAE Securities and Commodities Authority (the “SCA” or the “Authority”). The law relating to the offering of investment funds in the UAE was published in the UAE Official Gazette on 31 July 2016 and became effective on 1 August 2016 (SCA Board of Directors’ Decision No. 9/R.M. of 2016 concerning the Regulations as to Mutual Funds (the “MFRs”)). Further regulations relating to the arranging and promotion of investments in units of foreign funds were published in the UAE Official Gazette on 31 January 2017 and became effective on 1 February 2017 (SCA’s Chairman Decision No. 3/R.M of 2017 concerning Promoting and Introducing Regulations (the “PIRs”)) and have addressed certain issues relating to “Qualified Investors”.
This brochure refers to offers of funds to persons within ‘onshore’ UAE (which includes the Emirate of Abu Dhabi and the Emirate of Dubai, but does not include the DIFC or the Abu Dhabi Global Market (the “ADGM”), which are two separate financial free zones with their own separate common law-based civil and commercial legal and regulatory framework).
Public Offering
According to Article 3(1) of the PIRs, the promotion of Irish funds to the public in the UAE requires the approval of the Authority.
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Please note that prior registration with the Authority is also required in respect of the private placement of Irish funds, other than to non-natural Qualified Investors (see below).
An investment fund may only be offered to the public provided that:
● the fund is incorporated in a foreign country and regulated by an authority that is an Ordinary or Associate Member of the International Organisation of Securities Commissions (IOSCO) (according to the IOSCO website, CBI is an Ordinary Member); and
● the promoter is licensed in its country of origin to promote a public offering.
An SCA licensed promoter (which may be the local representative office or branch of a foreign company which has been approved for local promotion by the SCA), together with the foreign asset manager directly, is required to effect the filings to promote Irish funds in the UAE. There are currently around 37 such approved promoters.
As a result of the MFRs and the PIRs, once authorisation has been obtained from the Authority to promote the Irish fund in the UAE, no further registrations are required by other distributors of the Irish fund. Instead, if additional SCA licensed promoters are to be registered as a promoter to a fund that has already been approved by the SCA, this will involve a simple submission of the relevant forms, together with a promoter’s undertaking.
As mentioned above, following the enactment of the MFRs, foreign asset managers may register their funds directly themselves, in their own name, but still need to appoint an SCA licensed promoter for public promotions to non-Qualified Investors or private promotion to natural Qualified Investors (see below).
Private Placement
The approval of the Authority is not required in respect of private promotion of Irish funds on a reach-in or fly-in basis to the following categories of non-natural investors (each a “non-natural Qualified Investor”):
● An investor which is able to manage its investments on its own, namely:
● the federal government, local governments, government entities and authorities or companies wholly owned by any such entities6;
● international entities and organisations; or
● a person licensed to carry out a commercial activity in the state, provided that investment is one of the objects of such person; or
● An investor who is represented by an investment manager licensed by the SCA (the “Qualified Investor Exemption”).
There is no legal definition of what constitutes “private promotion” in respect of the above and it should be taken to mean private in the general sense (please note that this is different and entirely separate from the private placement regime as referred to below). Counsel recommend that the following be observed7:
● only discreet one-to-one discussions are held to gauge initial interest;
● an offer is only made to a very limited8 number of pre-selected non-natural Qualified Investors;
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6 The Authority has previously confirmed to counsel that it would consider intra-group entities that are a consolidated part of the balance sheet of the main entity to fall within this category.7 Based on tolerated practice guidance from the UAE Central Bank, which may continue to be useful to mitigate against breaching the licensing requirement or the marketing prohibition when undertaking activities on a reach-in or fly-in basis (other than the provision of investment advice and discretionary investment management services). Please note that much of the guidance provided has been given on the basis of an informal understanding of the approaches taken by the previous and current local regulators, which could therefore change at any time.8 The “limited number” test is principle-based and since there are no fixed definitions, specific advice should be sought on a case-by-case basis.
● only occasional low profile one-on-one meetings with pre-selected non-natural Qualified Investors are held in the jurisdiction and mass marketing, cold calling, seminars or roadshows are avoided;
● any application to subscribe to the funds, and any payments, are made to a non-UAE entity (i.e. the UAE investor must make payments to a non-UAE entity to evidence that it is cross-border);
● all contracts should be concluded outside the jurisdiction (which means that the contract should not be governed by UAE law and at least one counterparty should sign outside the UAE); and
● high profile activities (e.g. press coverage, frequent meetings, group meetings etc.) should not be undertaken.
The responsibility for verifying that an investor is a non-natural Qualified Investor lies with the relevant local promoter.
Any promotion of Irish funds in the UAE, other than promotion falling within the Qualified Investor Exemption, will require the approval of the Authority, including private placement. An Irish fund may be privately promoted and offered in the UAE by an Authority-licensed promoter9, provided that:
● the Irish fund is registered with the SCA;
● the promotion is limited to “natural Qualified Investors”10 (in addition to any non-natural Qualified Investors);
● the Irish fund must be regulated by a “Counterpart Authority”, i.e. an IOSCO Ordinary or Associate Member – which is the case, since the CBI is an IOSCO Ordinary member;
● the Irish fund must be licensed to be promoted in a public offering or a private placement in its domicile of incorporation; and
● minimum subscription amount of AED500,000 (c. USD136,150) or AED1 million (c. USD272,300)
(the “Private Placement Regime”).
There is no express exemption solely in respect of numbers of investors approached and no express exemption solely in respect of minimum subscription value.
Please note that the approval of the Authority is not required in respect of promotions falling within the Qualified Investor Exemption.
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9 This is defined in the Promoting and Introducing Regulations as a corporate person licensed to carry out the activity of “promotion”. “Promotion” means “the marketing, distribution, advertisement, publication, or provision of any data, information or advertising materials which relate to a “Financial Product” in any way or by any means”. This covers both reach-in and fly-in activity.10 A “natural Qualified Investor” is defined as “a financially sound natural person who acknowledges that their annual income is not less than AED1 million (c. USD272,300), that their net equity, excluding their main place of residence, amounts to AED 5million (c. USD1,361,500), and that they, themselves or with the assistance of a financial advisor, has the necessary know-how and experience to assess the offer document and the ensuing benefits and risks associated with the investment.”
Contacts
Fionán Breathnach
Partner, Ireland
T +353 1 266 1111
James McKnight
Managing Associate, Ireland
T +353 1 266 1122
Melody Yang
Partner, Beijing
T +86 10 8588 4525
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Niamh Ryan
Partner, Ireland
T +353 1 266 2115
Elaine Keane
Partner, Ireland
T +353 1 266 2114
Contacts
Jek-Aun Long
Partner, Singapore
T +65 6831 5591
Muneer Khan
Partner, Dubai
T +971 4 7096 699
Naoyuki Kabata
Partner, Anderson Mori & Tomotsune, Tokyo
T +81 3 6888 1119
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Rolfe Hayden
Partner, Hong Kong
T +852 2583 8302
For additional information on our firm, please visit our website at simmons-simmons.com.
© Simmons & Simmons LLP and its licensors. All rights asserted and reserved. This document is for general guidance only. It does not contain definitive advice.
Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, LondonEC2Y 9SS, United Kingdom. It is authorised and regulated by the Solicitors Regulation Authority and its SRA ID number is 533587. The word “partner” refers to a member of Simmons &Simmons LLP or one of its affiliates, or an employee or consultant with equivalent standing and qualifications. A list of members and other partners together with their professionalqualifications is available for inspection at the above address.
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