Why setup a financial services firm in the DIFC?
The DIFC is a leading financial hub in the region. Besides offering a wide range of financial service activities, the centre also provides an integrated environment and world-class standard of living. It is well regarded in the international community as well.
There exist opportunities for startups as well. The recent focus on fintech led to the DIFC Fintech Hive initiative, that serves as an accelerator for fintech firms to test their products and pitch it to prospective investors. Sarwa (https://www.sarwa.co) and SmartCrowd are two such success stories.
Specific Advantages:
Here are some specific advantages of establishing in the Dubai International Financial Centre:
LEGAL AND REGULATORY FRAMEWORK:
- Legal framework supports cross-border activities
- 100% foreign ownership permitted
- No restriction on foreign talent or employees
- No restrictions on capital repatriation
TAX BENEFITS:
- Zero tax for 50 years on profits, capital or assets from 2004
- Zero tax on employee income
COUNTERPARTY CONFIDENCE:
- Highly regarded, independent regulator
- Independent, English-speaking, common law judicial system
- Distinct from the UAE legal system
- Risk-based regulatory approach
DIVERSE ECOSYSTEM:
- Central to regional deal making
- High concentration of international firms, investment funds, wealth management firms, banks, and financial institutions
- World-class regional and international law and auditing firms, and other professional services
- The largest fund domicile in the region
GEOGRAPHIC EPICENTRE:
- Management offices, holding companies and family offices are located closer to the assets they own or manage
- The Middle East, Africa and South Asia (MEASA) is increasingly the centre of gravity for the global economy
- Dubai plays a central role in the growing South-South trade, principally between Asia and Africa
- Well-positioned to harness the potential of emerging markets
What is a Money Services Business?
Money Services Businesses cover a wide range of money-related activities, starting from payment processing companies to investment services, from individuals and startups to major global enterprises. They can include providing account information services, payment initiation services or analytics on client and corporate accounts. Other core money services can include issuing payment instruments, providing money transmission, payment processor services, operating payment accounts and issuing stored value. Transferwise, Nymcard, Paypal and Revolut are examples of money service businesses.
DIFC AISP and PISP License
Firms interested in carrying out money services business activities from the DIFC are required to submit applications to the Dubai Financial Services Authority, or DFSA.
The DFSA, for the purposes of authorisation and supervision, categorises money services business activities based on the type of money services being carried out, and the minimum base capital required.
The DFSA categorises the range of activities that comprise the Money Services Business into two groups: 1) Arranging and Advising on Money Services and 2) Providing Money Services.
Arranging and Advising on Money Services :
These include firms that provide open banking services, such as Account Information Services, Payment Initiation Services and other advising and arranging services.
Account Information Services – These firms are authorised to retrieve account information data from banking and other financial institutions such as lenders, mortgage providers, and credit card issuers. Such firms cater to both individuals, and institutions (mostly SMEs). Account Information Services come under Open Banking activities.
Some examples of Account Information Services Provider applications include:
Money management tools – These AISPs collate information from multiple sources – your many bank accounts, credit cards, mortgages, loans etc., and present such information in a format that is easy to understand and interpret. AISPs simplify money management for both individuals and SMEs that need to understand and manage their cash flows effectively.
Online loan applications – Enabling paperless transactions, such AISPs collate and present information to lending institutions that enable such lenders to make informed decisions on granting loans.
Other examples include comparison portals or online shops, that use digital account checks for seamless transactions.
Payment Initiation Services – PISPs go one step further that AISPs, by being authorised to make payments on behalf of customers. PISPs can do this by using the bank’s own tools. This is akin to a ‘read-write’ access, as opposed to ‘read-only’ access provided to AISPs. PISPs also come under Open Banking activities.
Some examples of Payment Initiation Services Provider applications include:
Financial Management Tools – such as Systematic Investment Plans and direct-debit applications. A small portion of money can be transferred automatically using a previously-defined process – such automation saves a lot of time and effort of the customer.
Solutions for businesses – Business back-office systems can integrate with PISPs to provide value-added services to companies, such as managing payments, collections, real-time bank transfers, in addition to displaying consolidated information on their financial standing.
How to go about it
Due to the higher risks associated with these activities, the DFSA places higher entry-level requirements and restrictions on the license itself. Chances are that the first point of entry be through the DFSA Innovation Testing License, rather than a full-scale application. This is however, decided on a case-to-case basis.
You can also setup in the DIFC with a DIFC Innovation License, which is for non-regulated technology startups. Such a license encourages startups to establish a presence in the region, employ staff and prepare for regulation by then applying to the DFSA for regulatory approvals. You cannot however, carry out regulated activities until a Financial Services Permission has been obtained.
Required appointments
As with other category firms, the DFSA expects that the firm be adequately staffed depending on the scale, scope and nature of the product portfolio that is proposed to be offered from the DIFC. At a minimum, the DFSA would like to see the following appointments:
Board of Directors – a well-organized, diverse Board with Independent Directors and robust governance policies. The Chair would have to be a non-executive Director.
Senior Executive Officer (SEO) – Senior banking professional with over 10-15 years of experience, ordinarily resident in the UAE.
Finance Officer (FO) – Senior and suitably-qualified finance professional. In case of a group, the FO can be from the parent company and does not have to be resident in the UAE. This role can also be outsourced.
Risk Officer – Senior risk professional, can be from the parent entity in case of a group.
Compliance Officer (CO) - Senior compliance professional with over 10 years of experience, ordinarily resident in the UAE.
Money-Laundering Reporting Officer – Senior AML professional with over 10 years of experience, ordinarily resident in the UAE. This function can be combined with Compliance and one individual can carry out both responsibilities.
The CO and MLRO roles can also be outsourced in certain circumstances.
Internal Auditor - Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.
External Auditor - Senior and suitably qualified external audit firm. The DFSA maintains a list of recognised auditors, and there are 15 such firms at present.
DIFC Regulatory Capital requirements
The base capital requirement for a AISP and PISP Money Services Business license US$ 10,000. Actual capital required will depend on the nature, quantum of business and forecasted annual expenditure, as per the financial model of the proposed firm.
Calculation of capital is a detailed process and involves many factors. We recommend that you contact us for more details on the application process and capital calculations.
Can DIFC firms service clients outside the centre, and in the greater UAE?
Yes, they can. Sheikh Mohammed bin Rashid Al Maktoum issued Law No. (5) of 2021 relating to the DIFC, which brought further clarity to the rules governing the promotion and supply of services and products for firms registered in the centre.
The revised law confirms that DIFC-registered entities can supply services and products outside the DIFC, as long as they are primarily provided out of the firm’s premises in the DIFC area. Marketing and promotional activities are also allowed outside the centre.
There may be additional rules to follow, for instance, when actively marketing funds from the DIFC. A passporting regime exists in this case, where the fund manager can register for a passport for the fund to be marketed in the UAE and the ADGM. Do get in touch for more information on this.
The DIFC Application Process
The DIFC application process commences with formal introductions to the DIFC and the DFSA.
Following the introductory call, a detailed Regulatory Business Plan (RBP) is prepared, along with financial projections, for a quick review by the regulator.
The comments of the regulator are incorporated into the RBP, and a comprehensive application is compiled, comprising policies, processes and other related documentation. The KYC and associated forms of all key individuals are also prepared for submissions.
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 60 and 90 days 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 SEO, FO and CO/MLRO designates, and conducts a detailed interview with them.
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 the setting up of a legal structure, opening a bank account, and depositing the share capital in the account. Other tasks include finalization of auditors and obtaining professional indemnity insurance for the firm.
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 firm is now open for business.
Costs
Setting up a DIFC Regulated Firm involves the following interactions:
Generally, there are two components of DFSA fees. One – an application processing fee, and the other, an annual licensing fee.
Application fee: from US$ 5,000 for an AISP/PISP license application.
License fee: US$ 5,000 for an AISP/PISP money services business (prorated from the date of issuance of Financial Service Permissions).
Registrar of Companies (DIFC ROC)
The ROC helps to set up the legal structure of the DIFC Regulated Firm. Shareholders can be individual, or corporate. There are many options available, such as ‘Private Company Limited by Shares’ and ‘Limited Liability Partnerships’. In case of Private Company Limited by Shares, the costs for setting up include:
Application for reserving a name (2 working days): US$ 800
Application for Incorporation of a Private Company Limited by Shares (5 working days): US$ 8,000
Commercial License on Incorporation (5 working days): US$ 12,000 (annual fee)
This can vary, depending on the entry strategy adopted. In some cases, these fees can come down to US$ 1,500 for Year 1.
Data Protection
The data protection notification is part of the process of registering a new entity in the DIFC. The costs involved are as follows:
Registration - US$ 1,250
Annual renewal – US$ 500
Office spaces
Every entity registered in the DIFC is required to lease a physical office. You can choose from the Gate and surrounding buildings, or other buildings within the DIFC, such as Emirates Financial Towers, Central Park, Park Avenue, Burj Daman and Currency House.
Prices vary, depending on the space availed and the building. Here is an indication of the prevailing rates:
DIFC Business Centre – from a two-desk office at US$ 35,000.
DIFC Fitted Offices – from US$ 55 per square foot.
Other buildings – from US$ 32,000 per annum
For fintech licenses, DIFC has attractive packages starting from US$ 15,000 per annum. Get in touch for more details.
Visas
Establishment Card Application – US$ 630
PSA Deposit – US$ 682
Visas (per visa) – from US$ 1,500
PSA Deposit (per visa) – US$ 682
Visas are issued based on office space availed, and are usually calculated at 80 sq.ft. per visa.
Our Services
We provide turnkey services for DIFC Fintech Licenses. From inital consultations, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the DFSA Rulebook and submit an application that is comprehensive, complete and compliant.
Our services include assistance in:
• Reviewing the business model and advice on the applicable regulatory framework;
• Preparation of the Regulatory Business Plan and comprehensive financial projections;
• Preparation of all policies, processes and manuals required;
• Provision of Outsourced Compliance Officer and Outsourced Finance Officer services;
• Finalising the legal structure, including holding company setup and customisation of Memorandums; and
• Finalisation of leased space, bank account opening and obtaining Financial Services Permissions.
A lot of our fintech clients are startups, where experienced investment bankers set up their own shop. In these cases, we also assist such teams with corporate and commercial documentation through our legal consultany - 10 Leaves Legability. We assist in the drafting of:
- Founder agreements
- Shareholder agreements
- Investor agreements
- Share vesting/ESOP plans
- Client/Supplier/Distributor agreements
- Employment agreements
We also provide services in Luxembourg, Saudi Arabia and Mauritius.
Get in touch today! for More Information on AISP and PISP Licensing in the DIFC
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