The ADGM is set to introduce significant changes to its existing CSP and registered agent regime.

It has published Consultation Paper No.5 and is inviting feedback and comments on the proposal to introduce a framework for the regulation of Company Service Providers (CSP Framework).

The deadline for providing feedback is Tuesday 24 November 2020.

VIEW FULL CONSULTATION PAPER HERE

Requirements on SPVs and Foundations

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Subject to certain exemptions, the CSP Framework will, among other things:

• Require ‘non-exempt’ SPVs and foundations to appoint an ADGM-based CSP;
• Facilitate the Registrar’s access to corporate registers and simplify the process of serving documents by empowering CSPs to accept service on behalf of the ‘non-exempt’ SPVs and foundations; and
• Impose appropriate penalties and enhance the Registrar’s striking off powers under the Companies Regulations.

Exemptions include SPVs which form part of a corporate group with a well-established presence in the UAE or wholly-owned subsidiaries of any of the following:

• entities that are exempt from obtaining a commercial license;
• ADGM incorporated operational entities with a physical presence in ADGM;
• Financial Service Providers, and
• Companies that can demonstrate substantial assets, turnover and employees in the UAE, as well as adequate governance policies and procedures.

Requirements on CSPs

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New Controlled Activity

‘Providing Company Services’ is proposed to be a new controlled activity, including acting as an incorporation agent in connection with the incorporation or registration of bodies corporate in the ADGM, providing directors, company secretaries, councillors or nominee shareholders of companies to anybody corporate in the ADGM.

New Regulatory Requirements

The CSP Framework proposes to introduce a number of regulatory requirements on CSPs, including a requirement to satisfy the Registrar that an applicant for a license to provide company service meets, on being granted a license, specific conditions applicable to the controlled activity, namely:

• That it is a fit and proper person, having regard to the nature, scale and complexity of the CSPs activities;
• That it maintains and adheres to all compliance arrangements, including policies, controls, processes and procedures;
• That it conducts its business in a prudent manner, including a minimum capital base of USD 25,000, and insurance cover of an amount to adequately manage the business effectively and responsibly;
• That it maintains adequate resources to manage and conduct its affairs, including financial and system resources, as well as adequate competent human resources; and,
• An obligation on a departing CSP to cooperate with a successor CSP in transition.

These requirements come on top of standard policies, controls and procedures related to providing services in accordance with any outsourced arrangements under the UAE Economic Substance regime.

Client Money Rules

The proposal also introduces additional obligations for CSPs holding or controlling ‘client money’, under the proposed Commercial Licensing Regulations 2015 (Client Money) Rules 2020.

Client Money Rules are designed to provide protection to clients, safeguarding money belonging to them against fraud, misappropriation or misuse. The Rules have been benchmarked on similar requirements of common law jurisdictions including Guernsey and are proposed to be introduced in a risk-based, proportionate matter, taking the nature, scale and complexity of the CSP into account.

CSPs that will hold or control client money will be required to comply with the client money provisions and have in place the necessary policies, systems and controls relating to the handling and segregation of Client Money.  ADGM is scheduled to publish a Guidance Note to assist with the interpretation of the Client Money Rules.

Transition Period

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Existing ADGM CSPs wishing to act as a CSP under the new regime will be provided with a 6-month transition period to comply with the proposed CSP Framework.

‘Non-exempt’ SPVs and foundations will have the following period to comply with the CSP Framework:

• 12 months for existing SPVs and foundations; and,
• 8 months for new SPVs and foundations

Conclusions

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The proposed regime is a game-changer for ADGM CSPs and companies affected by the proposed regime.

It introduces a higher standard of governance and control to an area highlighted in the recently published MENA FATF evaluation of the UAE and brings ADGM in line with international standards and practices. It is likely to be monitored by other Free Zones and International Business Centres seeking to attract meaningful investment.

Its overall effectiveness will have to be tested going forward but CSPs serious about their business should welcome these changes – we at M/HQ do.

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