Established in 2015, Abu Dhabi Global Market (“ADGM”) is a financial free zone in the capital of the UAE that offers businesses the opportunity to operate within a well-regulated and internationally recognized financial environment. ADGM has its own financial services regulator, the Financial Services Regulatory Authority (“FSRA”). It was established to safeguard the confidentiality of the global financial hub, addresses potential risks and ensures adherence to professional standards. By enforcing guidelines and regulations coherent with ADGM’s framework, financial organizations operate transparently, ensuring the protection of investors’ interests.[1] The FSRA exercises authority over the authorization and supervision of a range of financial activities, including investment advisory, credit advisory, and insurance advisory services. This illustrates diverse financial entities such as banks, brokers, asset managers, insurers, and more. Notably, Category 4 activities fall within the scope of authorization requirements set by the FSRA. This article will examine the activities permitted under the Category 4 License in ADGM, along with the requirements for obtaining one.
Understanding Category 4 Licensing in the ADGM Framework
Under the ADGM licensing framework, Category 4 allows for the widest range of permitted activities compared to Categories 1 through 3. The Prudential – Investment, Insurance Intermediation, and Banking Rules within the ADGM Legal Framework delineate the activities associated with a business engaged in Category 4 operations as follows:
“An Authorised Person is in Category 4 if:
(a) its Financial Services Permission authorises it to carry on one or more of the
Regulated Activities of Arranging Credit, Arranging Deals in Investments,
Advising on Investments or Credit, Arranging Custody, Insurance
Intermediation, Providing Trust Services (where it is not acting as trustee in
respect of an express trust), Insurance Management, Acting as the
Administrator of a Collective Investment Fund, Operating a Multilateral Trading
Facility or Organised Trading Facility, Operating a Private Financing Platform
or Providing Third Party Services” [2]
Arranging deals in investments involves the facilitation of transactions wherein one party seeks to engage in the buying, selling, subscribing for, or underwriting of an investment. This can encompass various financial instruments such as stocks, bonds, or derivatives, and may occur with the individual acting on their own behalf or on behalf of another party as an agent.
Advising on financial products extends beyond mere transaction facilitation to providing informed guidance and recommendations regarding the suitability of specific financial products. This advice is directed towards individuals or entities in their capacity as investors or potential investors, or acting as agents for such parties. The aim is to assist them in making well-informed decisions regarding the purchase, sale, retention, subscription for, or underwriting of particular financial products, considering their unique financial goals, risk tolerance, and investment sector.
When it comes to arranging credit and advising on credit, the scope encompasses activities related to the borrowing of funds through credit facilities. This includes organizing arrangements for another party to obtain credit, whether they are acting as a principal or agent. Additionally, it involves providing advice to individuals or entities considering borrowing or already engaged in borrowing activities, or acting as agents for borrowers.
Building a Competent Team: Key Personnel Requirements for ADGM Category 4 Licensing
The importance of having a well-structured and competent team in place is emphasized in order to secure a Category 4 License. The ADGM Category 4 licensing requirements stipulate the necessity of certain key personnel, including a Senior Executive Officer (who must be a resident in the UAE), a Finance Officer, a Compliance Officer (also required to be a resident in the UAE), and a Money Laundering Reporting Officer (likewise mandated to be a resident in the UAE). However, it’s important to note that the same individual cannot simultaneously hold the positions of Senior Executive Officer and either Compliance Officer or Money Laundering Reporting Officer. While the MLRO, mandated to oversee anti-money laundering efforts, must be a UAE resident and can also serve as a Compliance Officer as these roles are considered compatible responsibilities. These positions play a crucial role in ensuring regulatory compliance and effective management within the company’s operations. [3]
Ensuring Regulatory Compliance
Moreover, it is inherent that companies pursuing an ADGM Category 4 license must uphold rigorous regulatory and compliance standards. This naturally involves the establishment of robust policies and procedures aimed at effectively mitigating risks. Additionally, it is imperative for these companies to fully comply with anti-money laundering (AML) and counter-terrorism financing regulations, as part of their commitment to maintaining the integrity of the financial system.
Understanding Base Capital Requirements
Nevertheless, securing an ADGM Category 4 license means that companies must satisfy a specific base capital criteria. Financially, the capital requirement for obtaining an ADGM Category 4 license is USD 10,000. However, there are exceptions to this rule. For instance, if a business intends to operate a private financing platform and hold client assets, the base capital requirement significantly increases to USD 150,000. Similarly, for those involved in providing third-party services, the base capital requirement stands at USD 50,000. These variations reflect the diverse nature of financial activities within Category 4 and ensure that firms are adequately capitalized based on the specific risks associated with their operations.
Navigating activities permitted under the Category 4 License in ADGM requires a comprehensive understanding of the regulatory framework established by the Financial Services Regulatory Authority (FSRA). This will ensure that businesses operating within the ADGM ecosystem adhere to stringent standards while benefiting from the opportunities presented by this global financial hub. By meeting the requirements set forth by the FSRA and ADGM, aligning with regulatory expectations and leveraging the opportunities provided, businesses can establish themselves within a well-regulated environment.
Hind Ayoubi
CSP associate
23-5-2024
For personalized guidance related to Category 4 licenses, please do not hesitate to contact our team by sending an email to assiss@assiss.com
DISCLAIMER: This blog post does not constitute professional advice. Additional facts or future developments may affect the content of this blog post. Before acting or relying upon any information within this document, please seek the advice of a member of our team.
[1] Financial Services Regulatory Authority.” Abu Dhabi Global Market, (https://www.adgm.com/financial-services-regulatory-authority).
[2] ADGM Financial Services Regulatory Authority.” Thomson Reuters, (https://en.adgm.thomsonreuters.com/sites/default/files/net_file_store/ADGM1547_11092_VER13181223.pdf).
[3] Financial Services Regulatory Authority.” Abu Dhabi Global Market, (https://www.adgm.com/financial-services-regulatory-authority).