Abu Dhabi Global Market becomes fully operational

The year 2015 was a busy one for Abu Dhabi Global Market (ADGM), the capital’s new financial free zone, established in accordance with Federal Decree No (15) of 2013, Cabinet Resolution No (4) of 2013, Abu Dhabi Law No (4) of 2013 and Federal Law No (8) of 2004, which is the same federal law that led to the establishment of the Dubai Financial Centre. In June 2015, ADGM had begun registering non-financial entities. In October, ADGM went fully operational and began the process of licensing financial companies that are setting up operations at the Al Maryah Island site, while the appointment of a number of key personnel over the previous year means that 2016 will likely see an even greater pace of development.

ADGM

ADGM, according to its chairman, Ahmed Ali Al Sayegh, “is a key pillar of Abu Dhabi’s Economic Vision, acting as a catalyst for the growth of its dynamic financial services sector in the UAE. At the heart of Abu Dhabi Global Market is a premise of long-term partnership – locally, regionally and internationally.” This ongoing process of efficient registration of financial and non-financial entities is being overseen by Dhaer Bin Dhaher Al Mheiri, who was appointed as CEO of the zone’s Registration Authority in January 2015. Prior to the establishment of the free zone, a number of firms had already established themselves at ADGM’s Al Maryah site, operating under the regular onshore regulatory framework. Transferring these companies to the free zone regime is therefore a key priority, and the process began with non-financial institutions. “Around 70% of the companies here in 2015 are non-financial and are operating on normal onshore licences. Our focus has therefore been on them, and on answering any questions they have with regard to business impact, and so on. We had one-on-one meetings with every existing tenant on the island,” Al Mheiri told OBG. Within the last six months of operations, the Registration Authority has successfully registered about 25 entities, with more in the pipeline. The introduction of limited partnership regulations at the end of 2015 means that the process is likely to speed up over 2016, although ADGM is keen to stress that the emphasis is on adding value rather than simply numbers. The key focus of the Registration Authority in 2016 will be ensuring an efficient registration process for financial companies.

Financial Services

On the financial services aspect of ADGM, significant milestones and achievement were also recorded. Richard Teng, previously the chief regulatory officer of the Singapore Exchange, was appointed CEO of the zone’s regulator in late 2014. His appointment was strategically timed at a crucial period in the development of the zone’s regulatory framework. The financial services regulations have been developed through a consultation panel made up of 26 institutions, including private banks and asset managers. In January 2015 ADGM presented its proposed regulatory framework to the wider population through an open market consultation process. The results came as a welcome boost to the project: “The feedback we received was positive, and very encouraging. There were some minor issues, as is to be expected, but nothing substantial has had to be altered,” Teng told OBG at the close of 2015.

The opening up of the consultation process also enabled the investment community to see one of ADGM’s principal selling points: a robust set of company regulations largely based on the UK Companies Act 2006, but with a number of amendments to reflect local requirements. One of the key innovations in the ADGM framework is the introduction of the “restricted scope company,” to which less onerous disclosure requirements will be applied – a model which provides a new holding company an alternative attractive to investors who are sensitive to disclosure and who prefer a regional incorporation model.

ADGM also departs from the UK Companies Act in its introduction of protected and incorporated cell companies, which permits the formation of multiple “cells”. Each cell has recourse limited to its own assets and liabilities; such a structure can be useful in circumstances where identifiable portions of a larger pool of assets may be attributable to separate investors. The cell company model may be used as an alternative to forming multiple special purpose vehicles for use in fund structures, and its inclusion in the ADGM’s framework may provide the basis for the development of new investment structures in the UAE market. Asset managers can now efficiently set up collective investment schemes and family offices using a number of purpose-built vehicles, including investment and non-charitable trusts, special purpose vehicles, open-ended and close-ended investment companies, all within a one-stop shop environment in Abu Dhabi via ADGM.

Foreign Ownership Provisions

Another key concept of the regulations, given the foreign ownership limits that exist onshore, is that ADGM companies may be wholly-owned by foreigners. This provision represents a powerful selling point as the ADGM sets out its stall for the global investment community, and 2016 is expected to bring more clarity as to the permitted activities of foreign-owned companies in the wider Abu Dhabi and domestic markets. Taken together, the ADGM’s most salient regulatory positions reveal a desire to create a robust, yet flexible, framework. “Our goal is to develop a vibrant and progressive financial services regulator,” Teng told OBG. “Flexibility is key. Local institutions want to do more here. At the moment many of them register funds in overseas places like the Cayman Islands – it is just not integrated. Our platform will allow them to consolidate their activities”. During this period, ADGM has established 10 collaborations with key local and international authorities such as the Central Bank of the UAE, Abu Dhabi Department of Economic Development, the Securities and Commodities Authority, the Insurance Authority, the Department of Municipal Affairs and the Jersey Financial Services Commission. It also instituted the Regulatory Committee.

2015 has also seen some important advances with regard to ADGM’s legal system. The ADGM financial free zone will operate according to its own legal structure based on common law, chosen, according to ADGM, because it is the most widely used system for the resolution of commercial disputes in the world. It is also attractive because it is continuously being kept up to date by the superior courts of the leading jurisdictions, with which the newly appointed ADGM judges have close contacts. In October 2015 ADGM appointed Lord David Hope of Craighead as the chief justice of the ADGM Courts. He arrives in Abu Dhabi with 50 years of legal experience that saw him reach the top of the profession in Scotland before attaining the position of deputy president of the UK’s Supreme Court. Lord Hope will preside over a system that includes both a court of first instance and a court of appeal, with the initial judge recruitment round nearing completion by the close of 2015. In November 2015, four senior judges were appointed, and Linda Fitz-Alan was appointed as the registrar and chief executive of ADGM Courts in October. Her role is to lead the development and implementation of the courts’ organisation and operational structure, as well as to facilitate and manage courtroom processes. Transparency will be a key characteristic of the system, and here again the influence of the UK model is discernible. “The intention is to make full use of the ADGM Courts’ website for the promulgation of information about its activities, following the practice adopted by a number of common law jurisdictions, including the UK Supreme Court,” Lord Hope told OBG. “The full text of the courts’ decisions will be published on the website and maintained on it as an archive for future reference. ADGM is casting its net widely in the appointment of its judges, looking to recruit them from a pool of judicial officers who have held senior positions in the leading common law jurisdictions across the world.

The courts’ regulations do not require judges to establish a permanent residence in Abu Dhabi, and it is expected that video link technology will be used for the purposes of interlocutory hearings and case management – obviating the need for judges and parties’ representatives to travel to Abu Dhabi for this purpose. Trials and appeal hearings will probably be held in ADGM Courts’ own courtrooms, but again, ADGM Courts will be looking to conduct trials and appeal hearings by video link technology, wherever possible.

Regulators

From a regulatory perspective, 2016 will see some important developments regarding the workings of the legal system. By the end of 2015 the final framework was nearing completion, with regulations dealing with various aspects of court procedure, including the Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015, having been sent out for consultation with the approval of the ADGM’s board of directors and then enacted in December 2015. Also enacted in December 2015 were rules, including those governing the jurisdiction of the Court of First Instance and the conduct of procedure for complaints against judicial officers. The full implementation of this framework in early 2016 will be a significant milestone for ADGM in the short term. 2016 should also see ADGM Courts enter into memoranda of understanding with the national courts in Abu Dhabi, in order to define its interaction with the onshore legal system. The fundamental relationship between the two systems, however, has already been made clear by ADGM: the jurisdiction of the ADGM Courts is limited to civil and commercial cases, disputes and appeals against decisions or procedures made by the Registration Authority and the Financial Services Regulatory Authority.

The courts do not have jurisdiction to hear, try or determine any issue or matter relating to alleged criminal offences, and it will be for the regulatory institutions to decide whether to refer anything that might be thought to constitute a criminal offence to the relevant authority in the Abu Dhabi court system.