Building on the ADGM’s significant growth and its position as a leading regional financial services hub, the ADGM’s geographical area and jurisdiction is set to expand to include Al Reem island, in addition to its existing location at Al Maryah island pursuant to UAE Cabinet Resolution No. 41 of 2023.  

This will enlarge the ADGM to around ten times its current footprint. It is expected to drive the expansion of the financial free zone’s ecosystem and ADGM’s position as an attractive jurisdiction for global financial institutions, financial services firms and non-financial firms to establish their presence in the region.

The ADGM Financial Services Regulatory Authority ("FSRA") has enacted a new framework for the regulation of “Private Credit Funds”. Amendments to the Financial Services and Markets Regulations 2015 (“FSMR”), the Fund Rules (FUNDS), Islamic Finance Rules (IFR) and the Glossary Rules (GLO) of the FSRA permit Private Credit Funds to operate in or from ADGM.

The framework adopted broadly follows the proposals set out in Consultation Paper No. 8 of 2022 - Proposed Regulatory Framework for Private Credit Funds. 

The Private Credit Fund framework enables collective investment funds and their respective fund managers authorised as “Private Credit Funds” to originate and invest in credit by introducing amendments to FSMR and the FSRA Rulebook. 

Private Credit Funds are required to obtain the appropriate financial services permission from the FSRA, be closed-ended and have a fund manager located in the ADGM. 

The FSRA considers that Private Credit Funds are unsuitable for investment by “Retail Clients” and accordingly Private Credit Funds may be offered only to “Professional Clients”, as either “Qualified Investor Funds” or “Exempt Funds”. Certain investment and operating restrictions are placed on Private Credit Funds. Fund Managers of Private Credit Funds are required to implement and maintain suitable systems and controls to address risks, such as in relation to it’s risk appetite statement, lending processes, risk management and stress testing. Key restrictions on Private Credit Funds include:

• restrictions on lending to certain types of borrowers (including individuals, other funds, related persons, other lenders, financial institutions and persons intending to use proceeds of the credit facility for speculative investment purposes);
• restrictions on their investments to credit facilities (which include loans which the fund may originate, purchase or participate in);    
• concentration risk investment restrictions which would require the fund to diversity its exposures;
• operating restrictions, addressing conflicts of interest, concentration risk, disclosure, reporting, stress testing and leverage; and
• a requirement to document and disclose the fund’s risk appetite statement and credit risk monitoring methods.

The framework aims to increase the range of funds available in the ADGM and attract participation from start-ups and small to medium-sized enterprises, balancing proportionate regulatory restrictions with flexibility for credit fund managers. 

The introduction of the new regime in ADGM follows the implementation of the credit funds regime in the DIFC, which came into force on in June 2022.

The ADGM has consulted on proposed Distributed Ledger Technology Foundations Regulations 2023. 

In Consultation Paper No. 3 of 2023 - Proposal for a Legislative Framework for Distributed Ledger Technology Foundations, the ADGM sets out the rationale and features of a new standalone Distributed Ledger Technology (“DLT”) foundations framework for foundations that facilitate DLT and token issuance (rather than amending the ADGM’s Foundation Regulations 2017, which was designed for wealth management purposes). Under the proposals, DLT foundations would have separate legal personality, a minimum initial asset value of USD 25,000 and would be subject to transparency obligations, and a requirement to file an annual return and audited annual accounts. DLT foundations would be permitted to conduct any activity that is not unlawful or contrary to public policy and the DLT foundation’s founders would be able to limit or specify purposes in the foundation’s charter. DLT foundations would be able to seek the necessary registrations and licences for regulated activities relating to tokens used within DLT projects from the FRSA. The consultation is now closed, and the timetable for implementation is not yet known.

The six-month transitional period to allow DFSA Authorised Persons carrying on “Crypto Business” prior 1 November 2022 to obtain appropriate licence modifications ended on 30 April 2023. 

The DFSA’s crypto asset regime, set out in the Regulatory Law and Markets Law and certain modules of the DFSA Rulebook, came into force on 1 November 2022. The regime regulates “Crypto Tokens”, being tokens which are used, or intended to be used, as a medium of exchange or for payment or investment purposes (or confer a right or interest in another token that meets these requirements) (read more…).

Firms should ensure they are aware of the licensing implications concerning their crypto activities and services. The DFSA requires firms who failed to receive a license variation approval by 30 April 2023 to stop all cryptocurrency-related business or risk enforcement action. The DFSA requires firms who wish to conduct crypto business, that were not already doing so before 1 November 2022, to first acquire clearance to modify their license.

The DIFC Family Arrangements Regulations 2023 provide a regulatory framework for global and regional family-owned businesses, ultra-high net worth individuals and private wealth. With effect from 31 January 2023, the regulations repealed and replaced the DIFC Single-Family Office Regulations and introduce a new family offices regime for structuring family businesses within the DIFC. The new regime establishes a new private register for Family Entities and Family Offices and a specially designated register for the registration of Family Businesses, provides for certification and accreditation programmes for family businesses and their advisors in DIFC, and arrangements for accredited advisers, corporate service providers and registered persons in DIFC to provide services to families in or from DIFC. There is no longer a requirement for a family business to register as a Designated Non-Financial Business or Profession with the DFSA.

Proposed new DIFC Venture Studio Regulations would establish a new legislative framework for  venture creation, business owners, startups and investors within the DIFC, according to an announcement and Consultation Paper No. 1 of 2023 issued by the DIFC on 17 February 2023. The new regime is intended to support entrepreneurial activity in the DIFC, by allowing the incubation, set-up and scaling of new enterprises in the DIFC to be carried out more easily than under the current DIFC Companies Law (DIFC Law No. 5 of 2018) regime. 

Under the proposals, a “Venture Studio Company” may be incorporated or continued in the DIFC in accordance with the DIFC Companies Law and the proposed Venture Studio Regulations, for the sole purpose of incubating new business ideas (referred to as “Ventures”) and establishing Venture Studio Companies in the DIFC, where Ventures reach a minimum viable product stage. Qualifying applicants must have sufficient experience and resources to conduct venture building as a business. The consultation is now closed, and the timetable for implementation is not yet known.

The new Commercial Agencies Law (Federal Law No.3 of 2022) is due to come into force in June 2023. It repeals and replaces the previous Federal Law No. 18 of 1981 (as amended) on commercial agencies. Implementing regulations are expected to be issued by the Ministry of Economy.

Commercial agency arrangements are commonly used in the UAE, whereby an international company appoints a local agent to distribute, offer, negotiate the sale or purchase of goods on its behalf within the UAE market for commission or profit. As under the previous regime, commercial agency arrangements must be registered with the Ministry of Economy. 

While the new regime retains the requirement that an agent must be a UAE national or a private entity that is 100% owned by UAE nationals, it also now allows a UAE public joint stock company (“PJSC”) owned, at least, 51% by UAE nationals (or a UAE private entity owned by a PJSC meeting these requirements) to act as agent. In addition, the Cabinet may permit commercial agency activities to be carried out by international companies that are not owned by UAE nationals for the first time, for products they own, provided that such agency is new, has never been registered and does not already have a commercial agent registered for it in the UAE. Registered agents have the benefit of certain protections, including a right to exclusivity right for the agent within its territory to represent the principal and sell the principal's products and entitlement for commission including on transactions directly concluded by the principal or by a third party within the agent's territory.

Commercial agency agreements can now expire at the end of the term (and the agent may have a right to claim compensation from the principal, unless the agreement expressly stipulates otherwise). Early termination or non-renewal of commercial agency agreements is permitted, subject to certain conditions being met. There are exceptions for longstanding agency relationships.

The Commercial Agency Committee has exclusive jurisdiction to hear any dispute arising between the parties to a commercial agency. The Committee is to resolve a dispute within 120 days, otherwise the parties have the right to bring court proceedings. The parties can also agree to resort to arbitration to resolve disputes.

The rules on the promotion or distribution of foreign funds in the UAE changed in January 2023. The new regime is set out in Securities and Commodities Authority (“SCA”) Decision No. 4/RM/2023 Concerning the Mechanisms of Regularisation of Status for Promotion of Foreign Fund Units, which repealed Decision No.9/RM of 2016 concerning the regulation as to Mutual Funds, and SCA Decision No. 02/RM/2023, which amended the SCA Rulebook. The SCA Rulebook is comprised in the SCA Decision No. 13/RM/2021 On the Rules Handbook of Financial Activities and Mechanisms of Status Regularisation (as amended).

Only firms licensed by the SCA to conduct the regulated activity of “Promotion” may promote foreign funds to “Professional Investors” and “Counterparties” (as defined in the SCA Rulebook) in the UAE on a private placement basis, with SCA approval. 

Promoters of foreign funds may issue units in foreign funds to Professional Investors and Counterparties in the UAE on a reverse solicitation basis, provided that the promoter is outside the UAE  (i.e., either from outside the UAE or from the DIFC or ADGM). The foreign fund promoter must provide documentary evidence of the reverse solicitation. 

Accordingly, the promotion or distribution of foreign funds to retail investors is now prohibited. All foreign funds to be distributed in the UAE must be registered with the SCA, except for those that can demonstrate documented reverse solicitation.

Promoters of foreign funds need to ensure compliance with the new regime. 

The aim of these reforms appears to be to encourage the establishment of onshore domestic public or private funds to facilitate promotion to investors in the UAE.

The SCA now separately regulates domestic public or private investment funds which have been established and licensed by the SCA within the UAE, and those funds which have been established outside of the UAE.

SCA Decision No. 1/RM of 2023 on the Regulation of Investment Funds and SCA Decision No. 8/RM of 2023 Approving the Annexes to Decision No. 1/RM of 2023 introduce a new classification system for domestic funds, including a number of new fund structures and came into force in January 2023. Domestic funds are classified into nine different classes: Standalone fund, Master fund, Umbrella fund and Sub-fund, Fund of funds, Feeder fund, Islamic Shariah Compliant fund, Environmental, Social and Governance Investment Fund (ESG), Charity and/or Endowment fund, Protected cells fund. There are also requirements applicable to 12 different types of investment policies of domestic funds.

The new regime introduces requirements as to incorporation of domestic funds, grants the SCA enhanced powers in relation to the monitoring and inspection of investment funds, and sets out requirements as to the form, content and risk disclosures contained in the fund prospectus, so that potential investors are provided with the basic information that may assist them to take their investment decisions. The Key Investor Information Document (KIID), which provides a summary of the particulars of the prospectus, must also comply with certain minimum information requirements. Capital requirements have been reduced to incentivise the growth of the domestic fund market; the capital requirement for a fund management company is now AED 1m (reduced from AED 50m) and the capital requirement for fund administration company is now AED 1m (reduced from AED 5m).

UAE licensed banks and financial institutions lending to companies and individuals should be aware of new legal requirements to obtain sufficient or adequate credit support in connection with loans made available to individuals and businesses in the UAE, which came into force on 2 January 2023. 

The Commercial Transactions Law (Federal Decree by Law No.50 of 2022) requires banks and financial institutions to obtain “sufficient” security or guarantees against loans. The Commercial Transactions Law would apply to loans to companies, as well as loans to sole traders, on the basis that the Commercial Transactions Law regulates “commercial” transactions conducted in the course of business by “traders” (which includes companies carrying out commercial activities).

There is now a similar provision in the Banking Law (Federal Decree Law No.14 of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities), which was introduced by an amendment to the Banking Law (Federal Decree-Law No. 23 of 2022). UAE licensed banks and financial institutions are required to obtain “adequate” security when lending to individuals and sole proprietorships, taking into account the relevant facility and the customer’s income and financial position. 

Neither the Commercial Transactions Law nor the Banking Law define or provide guidance as to when security or guarantees granted in support of loans will be considered “sufficient” or “adequate”. The provision of the Banking Law requiring a bank to obtain “adequate” security was considered by the Abu Dhabi Execution Department in Abu Dhabi Execution Action No.143 of 2022, as it was raised as a defence in relation to whether the bank was entitled to present a security cheque for enforcement in connection with a debt owed under a facility agreement. The Judge commented that the underlying rationale is to protect customers, in the event they default on loans made to them banks or financial institutions, from enforcement action being taken against their assets outside the scope of the security they have granted in favour of the relevant bank or financial institution. Abu Dhabi Execution Action No.143 of 2022 did not involve substantive proceedings and it is not clear whether the Abu Dhabi courts, or other courts of the UAE, would take this approach in any future proceedings.

Financial institutions should carefully consider the risks associated with unsecured transactions, and the scope and value of assets which are secured in the context of secured transactions. It is unclear how any judicial authority or arbitral tribunal would apply the restriction as to sufficiency/adequacy of security or determine the sufficiency/adequacy of any security or guarantees. It remains to be seen how judicial and market practice will evolve.

New Virtual Assets and Related Activities Regulations 2023 were issued by the Virtual Asset Regulatory Authority (“VARA”) on 7 February 2023, which regulate virtual assets and virtual asset activities in the Emirate Dubai, including “Special Development Zones” and free zones (excluding the DIFC). VARA also issued a range of rulebooks, including:

• four Compulsory Rulebooks which set out the mandatory obligations for Virtual Asset Service Providers (Company; Compliance & Risk Management; Technology & Information; and Market Conduct);
• seven Activity-Specific Rulebooks (relating to licensed activities); and
• a Virtual Asset Issuance Rulebook setting out the rules for the issuance of virtual assets.

Key provisions of the Virtual Assets and Related Activities Regulations 2023 include:

• licensing requirements for Virtual Asset Service Providers, including a requirement for all entities wishing to carry out one or more “Virtual Asset Activities” to seek authorisation from VARA prior to conducting any such activities, and to obtain and maintain a licence issued by VARA to conduct the relevant activities, unless an exemption applies;
• a general prohibition on entities carrying out virtual asset activities unless authorised and licensed by VARA (and on an employee carrying on or facilitating the virtual asset activity on behalf of its employer that is authorised and licensed by VARA), unless an exemption applies;
• prohibitions relating to insider dealing, unlawful disclosure and market manipulation;
• a requirement on Virtual Asset Service Providers to comply at all times with the four Compulsory Rulebooks, and the relevant activity-specific Rulebook(s); and 
• rules relating to the issuance of virtual assets, including a requirement to comply with the new Virtual Asset Issuance Rulebook; 
• provisions relating to VARA’s supervision, examination and enforcement powers, including enforcement actions, fines and other penalties. 

Virtual Asset Service Providers must also comply with any applicable UAE Central Bank regulation on Virtual Assets. The Virtual Assets and Related Activities Regulations 2023 follow the issuance of Cabinet Decision No.111 of 2022 on the Regulation of Virtual Assets and their Service Providers under which it is prohibited for any person to engage in virtual asset activities in the UAE (excluding the ADGM and DIFC) without obtaining approval and a licence from the SCA or a local licensing authority (such as VARA). VARA also issued Marketing Guidelines in 2022.

New rules will restrict Saudi Arabian government bodies, authorities and public institutions from contracting with companies which do not have a regional headquarters in the Kingdom of Saudi Arabia (“KSA”), except in accordance with Saudi Arabia Cabinet Decision No. 377/1444 on the Approval of the Controls of Contracting between Government Agencies and Companies that Do Not Have a Regional Headquarters in the Kingdom, issued on 27 December 2022 (corresponding to 19/6/1445 AH). Compliance is required with effect from 1 January 2024. 

New Guidelines for Government Contracts with Companies and Related Parties Without Regional Headquarters in KSA (“Guidelines”) have also been issued by the Council of Ministers (Resolution No. 377 dated 03/06/1444H (corresponding to 27/12/2022G)). 

Under the new regime, government agencies may not contract with companies or related parties that do not have regional headquarters in KSA, except in limited circumstances (broadly, where the cost of the works/procurement is lower than the minimum threshold of SAR 1,000,000 or where the works/procurement is conducted outside KSA). International companies (or related parties) which do not have a regional headquarters in KSA are permitted to submit bids for tenders put forward by Saudi Arabian Government agencies in specified circumstances. Such bids may only be accepted in limited circumstances. A Committee (reporting to the Ministry of Finance) is expected to be formed to consider any applications for exemptions brought by the relevant Government agency.

The policy is designed to encourage international companies seeking Government contracts to have their regional headquarters based in Saudi Arabia, and so promote Saudi Arabia as a regional business hub, as well as facilitate greater investment and employment and training opportunities for Saudi nationals in line with Vision 2030.

The Saudi Arabia Council of Ministers has approved amendments to the Personal Data Protection Law (Royal Decree M/19 of 9/2/1443H ) (“PDPL”), following a public consultation by the Saudi Data and Artificial Intelligence Authority (“SDAIA”) in December 2022 (read more…).

Key points to note include:

• the restrictions on the transfer of personal data outside of Saudi Arabia have been relaxed, as international transfers will no longer require prior approval from SDAIA, and such transfers should generally be permitted where personal data is transferred to a country which offers an appropriate level of protection no less than the level of data protection in Saudi Arabia;
• organisations can lawfully process personal data on the basis of their “legitimate interests” (other than sensitive personal data, or processing that contravenes with the rights granted under the PDPL and its executive regulations). Accordingly, consent will no longer be the only primary ground for processing personal data;
• changes to the requirements relating to notifications of a personal data breach to SDAIA; and
• criminal penalties for violating data transfer restrictions have been removed (other than in relation to the disclosure or publication of sensitive personal data in violation of the law). Civil penalties for breaches of the PDPL include a warning or a fine.

The PDPL is now due to come into force in September 2023 (delayed from March 2023). There will be a one-year grace period for organisations within the scope of the law to ensure they are compliant, from the date the PDPL comes into force. The executive regulations are expected to be made under the PDPL.

Saudi Arabia has launched the National Intellectual Property Strategy (the “NIPST”) under the auspices of the Vision 2030. The key aims of the NIPST are to enhance the creation of national high-value intellectual property (“IP”) assets, to establish a fast and efficient IP registration system, to facilitate an ecosystem for IP-based and to ensure adequate protection of IP-based products and services.

The Saudi Authority for Intellectual Property (“SAIP”) issued a draft IP law for public consultation on 5 April 2023, aligned with the aims of the NIPST. Among other things, the draft IP law regulates joint IP ownership and contractual relationships relating to IP, the assignment and licensing of IP rights, litigation and enforcement procedures, and protections relating to applications pertaining to national security or sensitive sectors within the Kingdom. It also addresses the role of the Saudi Arabian Government and research institutions in relation to research and development relating to IP rights, and the role of funds, accelerators and incubators. 

The annual turnover threshold for reporting economic concentrations to the General Authority for Competition (“GAC”) has changed, according to a press release by the GAC on 29 March 2023 (corresponding to 7/9/1444H). Saudi Arabia has a modernised Competition Law which came into force in 2019. Where the transaction involves a business in Saudi Arabia, it may be necessary to file an application with the GAC to have the transaction pre-approved within 90 days prior to the completion date. Previously, GAC approval was needed if the total annual turnover of the parties involved exceeds SAR 100m (US$27m). This has been increased to a total annual turnover SAR 200 million (US$52m). Transactions below this increased threshold should not be caught, and accordingly the number of economic concentrations which are required to be notified to the GAC should reduce.

A new Banking Law is proposed by the Saudi Central Bank (“SAMA”) and a public consultation on the draft law was launched in January 2023. If enacted, the draft new Banking Law would provide for licensing, regulatory, supervisory and enforcement powers for SAMA. Entities carrying on “banking business” (such as accepting deposits, providing credit, operating bank accounts and offering financial products) in KSA would require a licence, subject to certain exemptions (including exemptions for certain cross-border activities). SAMA would have the discretion to determine what is considered “banking business” within the scope of the regime, when carried out by foreign entities with KSA residents. There would be a more detailed set of licensing standards, provisions relating to the management and governance of banks, the maintenance deposits with SAMA and enhanced consumer protection requirements.

New rules require all corporate entities in Kuwait to disclose their ultimate beneficial owners (“UBOs”) and maintain a register of their UBOs, except for specified Government-related entities. According to Resolution No.4 of 2023 issued by the Ministry of Commerce and Industry in Kuwait January 2023, UBOs are natural persons who directly or indirectly own 25% or more of a Kuwaiti company, hold voting shares equal to or exceeding 25% of the company’s voting shares, or otherwise have control over the company. Failure to comply with the disclosure requirements could result in obstacles to obtaining or renewing a Ministry of Commerce and Industry license.

The new data protection regime came into force in February 2023. The Royal Decree No. 6 of 2022 on Personal Data Protection Law of the Sultanate of Oman aligns the Omani regime with aspects of global and regional data protection laws, including relating to rights of data subjects, notification of processing of personal data and restrictions on the processing of sensitive personal data. 

There are certain exemptions from the application of the new regime, including where the processing of personal data is national security or public interest reasons, the protection of the economic and financial interests of Oman.