ADGM grows up: issues first fines

The Abu Dhabi Global Market (ADGM), the financial free zone which began operations in 2015, has now come of age.


On 14 April 2019 Mr Alexander Guy, Senior Executive Officer and Director at Eshara Capital Limited, had the uncommon honour of becoming the first named person to be fined by ADGM’s Financial Services Regulatory Authority. Eshara Capital, in its corporate capacity, was also fined in connection with the same contraventions.


Commencement of regulatory enforcement actions, such as the imposition of financial penalties, demonstrates that the Financial Services Regulatory Authority has the capacity, and perhaps more importantly, the appetite to take actions against its member firms (and their senior management). Financial free zones who act too aggressively in the early days risk scaring away potential members. Being seen as too lenient is just as bad, and risks threatening the creditability of the institution itself.


In this instance Mr Guy has been fined a modest sum, USD 10,000. Eshara Capital has itself been fined a further USD 10,000. The size of the fines reflects the relatively low-key nature of the offenses. It appears that Eshara Capital failed to file a number of regulatory returns. These included the firm’s annual prudential return for 2017, the regulatory return auditor’s report for 2017, and the first three quarterly returns for 2018.


The regulator has drawn attention to the fact that Mr Guy, as SEO and a licensed director, had ultimate responsibility for the day-to-day management of Eshara Capital and held significant responsibilities for ensuring that Eshara Capital complied with all applicable legislation. The regulator also drew attention to the fact that although Mr Guy appeared to have been cooperating with the regulator in terms of remedying the defaults, the remedial action he took in respect of the contraventions was not timely or complete. Mr Guy’s conduct allowed Eshara Capital to breach and remain in breach for a considerable period of time, and despite repeated reminders from the regulator. In conclusion, it was held that Mr Guy behaved in a reckless manner.


The regulator did not order disgorgement in this matter as it appears that Mr Guy did not derive any personal financial benefit from the contravention or the reckless conduct.


In any regulated environment there will be a period of time between a contravention, the regulator becoming aware of it, investigating the same, and then taking public enforcement action. Under the circumstances, it might be reasonable to assume that there is now a pipeline of ADGM enforcement actions, and that Mr Guy’s punishment is but the first.


Afridi & Angell has been advising on matters of UAE financial services regulation since 1975. In 2008 we advised the first firm to be sanctioned by the Dubai Financial Service Authority, and we have continued to advise on regulatory investigations and enforcement actions in both Dubai and Abu Dhabi. ■

ADGM announces tech start-up licensing regime

The Abu Dhabi Global Market (the ADGM) recently announced the launch of a commercial license specifically catered towards tech start-ups that allows entrepreneurs to obtain an operational license in the ADGM and access to a Professional Services Support Program aimed at allowing entrepreneurs entry to a community of businesses, financial services and professional advisors.


The license is available to entrepreneurs of all nationalities floating technology driven start-ups with scalable innovative business concepts that can be deployed in the UAE and contribute to the development of the local economy. Demonstrable evidence of the progress of such technology (such as a prototype or market traction) will be required along with a clearly defined business plan with relevant forecasts.


Registering under the license offers the following benefits:


• a fully operational commercial license for two years;


• annual fee of USD700 (as opposed to the USD10,300 initial registration fee and USD8,100 annual renewal fee ordinarily  applicable);


• registration with a virtual office address (business centre or agent/advisor registered address) or physical working space  (micro-office);


• access to ADGM’s Professional Services Support Program; and


• the option to obtain up to four employee visas.


The registration process remains the same as the current online procedure used for ordinary commercial licenses (involving submission of an application form and business plan, initial screening and pre-approval, final approval and issuance of license after registration and incorporation). After two years, if the start-up is able to show progress such as revenue or a sufficient level of investments, it will either be converted to a traditional operational entity on normal license terms or a holding company.


The Professional Services Support Program is a unique partnership between the ADGM and leading local and international advisers, established to help entrepreneurs enhance the scalability of their ventures, build business skills and provide guidance in the fields of accounting, compliance, finance, legal and VAT.


These developments come on the back of a number of initiatives by the ADGM to address set-up costs, access to funding and business support for start-ups (such as the FinTech RegLab programme). They are also in line with the UAE’s National Innovation Strategy to make the UAE a more attractive base for new businesses and ultimately promote economic diversification, foster growth and stimulate the region’s innovation environment. ■