Dubai's leading financial free zone expands its business and legal influence

Dubai is home to the region’s principal financial free zone, the Dubai International Financial Centre (DIFC). The zone hosted 1648 registered companies in 2016, including 447 financial services firms. The zone also hosts the Nasdaq Dubai stock exchange, which lists the largest amount of sukuk (Islamic bonds) in the world, with a November 2017 figure of $53bn.

Business Trends

Ian Johnston, chief executive of the Dubai Financial Services Authority, which regulates activities in the DIFC, told OBG that the authority had licensed 70 new businesses in 2016. The entrants were mostly banks and insurance firms, of which HSBC Middle East was the largest. HSBC is the first fully licensed bank in the zone, with others concentrating on niches, such as trade finance. “Many large banks have followed their customers to the region and see Dubai as a gateway into not only the Middle East, but Africa as well,” he told OBG, citing the arrival of four large Chinese banks as an example of the trend. This highlights growing interest from emerging market-based institutions. “When it was first established in 2002 the DIFC had a stronger reputation among Western companies, but since 2011 there’s been a notable shift to the East, and we expect continued growth from Middle Eastern, South Asian and Far Eastern businesses in the coming years.”

Regional Leader

Although other territories in the region are seeking to develop financial free zones of their own, the DIFC still remains highly competitive. Rajai Ayyash, managing director and Gulf regional executive for global client management at BNY Mellon, said he did not see Abu Dhabi’s financial free zone, Abu Dhabi Global Markets (ADGM), taking any significant amount of business away from the DIFC. “There is some competition between the two in the financial technology space, but ADGM is currently focusing on slightly different areas, such as asset management, and can therefore actually complement the DIFC,” he told OBG, adding that he felt the DIFC would maintain its position as similar free zones in the region develop.

Court System

A key body in the zone is the DIFC Dispute Resolution Authority, which is tasked with oversight of the DIFC Courts. This is an arbitration system operated in conjunction with the London Court of International Arbitration, a law academy and wills and probate registry. The court system settles civil, commercial and now, with the change in the law, labour disputes in the DIFC, applying the zone’s common law – unless otherwise specified by the contract in question – which is based predominantly on UK common law.

This legal system helps attract international financial institutions to the zone, as many are familiar with the UK’s legal structure given the importance of London to the international financial system, and the court activities are conducted in English. The sums in dispute cases rose from $440m in 2014 to $1.5bn in 2016.

The courts generally aim to achieve a settlement without trial, and 85% of cases were resolved this way in 2016, which the authority suggested may be the highest rate of settlement for a commercial court in the world. The system also runs a small claims court that does not involve lawyers for cases disputing sums of less than Dh500,000 ($136,000), and 90% of these are resolved within one month.

The DIFC Courts have also operated a pro-bono scheme since 2009, involving a register of 30 volunteer legal practices willing to take on some cases for free, as well as pro-bono clinics every two weeks for clients in need of help. The offering addresses the problem of contractors who wish to take a client to court for non-payment, but cannot afford to hire a legal team to do so because they have not been paid.

The zone’s courts continue to expand, which is likely to further boost its attractiveness to firms seeking to deal with UK law. A significant move was made in March 2017: the authorities amended the 2004 DIFC Courts law to extend their jurisdiction from civil and commercial cases to include labour cases arising from disputes between DIFC-based businesses and their employees.