GCC Quarterly Review - Q1 2019
The conditions to enforce foreign arbitral awards are still to be governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, to which the UAE is a party. For this reason, arbitration often offers the greatest certainty regarding the enforceability of contractual rights, as there should be a greater chance that a foreign arbitral award (as opposed to a foreign judgment) will be enforced by a UAE court. The conditions to enforce foreign judgments remain substantially the same, according to the new regulations. This means that where there is no relevant treaty, enforcing foreign judgments can be challenging as it is often unlikely that the conditions to enforce will be met.
Update on foreign investment in UAE: Regulations are expected to be issued to add essential details of the new framework for foreign investment in UAE companies, enacted by Federal Law No.19 of 2018 regarding foreign direct investment. The anticipated regulations should set out the sectors which are on a new “Positive List”. Foreigners will be able to own up to 100 per cent. of the share capital in UAE companies operating in those sectors on the Positive List, subject to licensing requirements. Read more in our alert.
New investment fund passporting rules enable UAE-wide promotion: A new passporting facility enables units in funds licensed by the three financial markets regulators in the UAE to be more easily promoted across the UAE, both onshore and in the financial free zones of Abu Dhabi Global Market (ADGM) and DIFC. The Securities and Commodities Authority (SCA) which regulates financial markets onshore in the UAE, the Financial Services Regulatory Authority (FSRA) in ADGM and the Dubai Financial Services Authority (DFSA) in the DIFC have agreed a protocol regarding the co-ordinated supervision of the marketing and selling of domestic funds to potential investors and clients situated within the UAE (including the DIFC and ADGM), without the need for further authorisation or approval by any authority. Both public and private funds may be passported under the protocol. There is a new notification and registration framework for passported funds. In the ADGM, the Financial Services and Markets Regulations 2015 has been updated to include the new rules. In the DIFC, the DFSA has issued a new Funds Protocol Rules module, as part of its Rulebook.
Onshore listing for UAE free zone companies?: The UAE Securities and Commodities Authority (SCA) has published proposed amendments to SCA Resolution No.11/R.M of 2016 Concerning the Regulation of the Offering and Issuance of Stocks of the Public Joint Stock Companies which would allow a public limited company incorporated in a free zone to offer its shares onshore in the UAE, with SCA approval. Certain conditions must be met, including that the company must have fully paid-up share capital of not less than AED 20 million, have audited financial statements for 2 financial years, provide a no-objection certificate from the regulatory body in the relevant free zone and the offer must be restricted to “Qualified Investors” only. The shares that may be offered shall not be less than 30 per cent. and not more than 70 per cent. of the company’s issued share capital. The company must meet all onshore listing requirements. The SCA has the discretion to impose greater conditions or waive any conditions. The timescale for adopting the draft amendments is not known.
DIFC revises companies’ law regime: The Dubai International Financial Centre (DIFC) has made significant changes to the companies’ law regime. The new Companies Law, DIFC Law No.5 of 2018, repeals and replaces the previous Companies Law (DIFC Law No.2 of 2009). One of the most important changes is to the classification of companies, which affects existing companies and new companies being established in the DIFC. Other key features include a more comprehensive set of codified directors’ duties, a new merger regime and a new compromise and arrangement procedure, which draw on best practice from other common law jurisdictions. The DIFC has also enacted new Companies Regulations, an Operating Law (Law No.7 of 2018) and Operating Regulations and Ultimate Beneficial Owner Regulations. Together, these form a new regime for companies doing business in the DIFC. Read more about the key features of the new companies’ law regime in the DIFC in our alert.
Saudi Arabia’s new competition regime: a new Competition Law will come into force in Saudi Arabia in October, following the adoption of Royal Decree No. (M/75) of 1440H in March. The new Competition Law will effectively replace the existing regime enacted in 2004. The modernised regime seeks to support the goals of Saudi Vision 2030 and enhance the conditions for investment the Kingdom.
Broadly, the regime applies to the economic activities carried out by “establishments”, which is widely defined to include any person or companies in Saudi Arabia. It also applies to the economic activities practiced outside the Kingdom where competition in the Kingdom is affected (so, foreign entities will be likely to be under pressure to comply to ensure continued access to Saudi markets). Government entities and state-owned companies are excluded from the application of the law.
The regime regulates:
- Anti-competitive agreements: the law sets out a range of specific prohibited arrangements between establishments which have as their object or effect the violation, reduction or prevention of competition are prohibited (including price fixing, setting conditions for sale, collusive bids/tendering, agreements to limit output, the sharing or allocation of customers or areas and collective boycotts of customers or suppliers).
- Economic concentrations: where a proposed “economic concentration” (such as a merger or an acquisition) may affect competition in a relevant market, the establishments will be required to file notify the General Authority for Competition (GAC) and request pre-approval for the transaction. The notification must be made within 90 days (increased from 60 days under the previous regime) prior to the completion date. Implementing regulations will specify the percentage threshold at which notification is required.
- Abuse of a dominant position: the law sets out a range of prohibited abusive activities or activities that lead to the reduction or prevention of competition. The threshold at which an establishment is deemed to have a dominant position will be set out in implementing regulations.
Exemptions from provisions of the law are possible, for example if the practice will enhance the performance of the market or establishments provided this is beneficial for the consumers. Violations are punishable by fine. A new committee will settle disputes and enforce penalties under the Competition Law. The GAC has launched a campaign to inform businesses of the key features of the new competition law.
Commercial Companies Law in Oman: Oman’s new Commercial Companies Law is in force with effect from 1 April 2019. The new law provides a modernised framework for Omani companies, and regulations are expected to be made on a range of issues under the new law in the coming year, including relating to public joint stock companies and listings of shares, bonds and Sukuk. The Capital Market Authority has the power to regulate and supervise public joint stock companies. Enacted by Royal Decree No.18 of 2019, the new law repeals the previous Commercial Companies Law of 1974. The new regime should boost the private sector and promote economic diversification, in line with Oman’s 2040 Vision.
Middle East cryptocurrency regulation: This quarter has seen initiatives by Bahrain, Saudi Arabia and the UAE to establish and to regulate cryptocurrencies. In Bahrain, the Central Bank has issued new cryptocurrency regulations, including rules on licensing, governance, and risk management for cryptocurrencies as a new asset class. Saudi Arabia and the United Arab Emirates announced plans in January to launch a new common cryptocurrency, known as Aber. No launch date has been announced. In its pilot phase, the use of the new cryptocurrency is expected to be restricted to the Central Banks and a small number of banks in each of the UAE and Saudi Arabia. It is intended to allow blockchain-powered financial settlements between financial institutions and to facilitate cross-border payments. This collaboration forms part of a wider set of initiatives of the Saudi-Emirati Coordination Council across various sectors. In 2018, the UAE’s SCA announced its intention to recognise digital tokens as securities and introduce a framework to regulate cryptoasset activities, including initial coin offerings (ICOs), exchanges and other intermediaries. The ADGM has already issued regulations on crypto asset activities conducted in or from the ADGM, and it was the first regulator in the MENA region to do so. Read more... You can read more about ICOs in Linklaters client note - A Global View of Initial Coin Offerings (ICOs) and Regulation. You can also read about developments in the fintech sector in our blog, FintechLinks.