Introduction The Dubai International Financial Centre (DIFC) is an "onshore" financial centre, offering a convenient platform for leading financial institutions and service providers. DIFC has been established as part of the vision to position Dubai as an international hub for financial services, and as the regional gateway for capital and investment.
Between the financial centres of Europe and South East Asia lies a region comprising over 42 countries with a combined population of approximately 2.2 billion people. Yet, this vast region, stretching from the western tip of North Africa to the eastern part of South Asia had, until 2004, been without a world-class financial centre.
DIFC aims to play a pivotal role in meeting the growing financial needs and requirements of the region while strengthening links between the financial markets of Europe, the Far East and the Americas.
The mission of DIFC is to be a catalyst for regional economic growth, development and diversification by positioning DIFC as a globally recognised financial centre. The centre has been designed to attract regional liquidity back into investment opportunities within the region and contribute to its overall economic growth.
DUBAI: ECONOMIC DYNAMISM, GROWTH AND VISIONCritical to DIFC's success is Dubai's established track record of realising projects of scale in an environment that is safe, vibrant and exciting. His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, has continued to lead efforts that have established the Dubai and the UAE as one of the fastest growing cities in the world. During the period 2000-2006, Dubai GDP grew by cumulative annual growth rate (CAGR) of 13 per cent in real terms.
Dubai has a well-diversified economy based on international trade, banking and finance, information and communication technology, tourism and real estate. In 2005, oil contributed less than 6% of Dubai's GDP; down from around 50% in 1985 and 24% in 1993. By 2010, the share of oil in the economy is expected to be less than 1% of GDP.
This economic diversification is continuing with the establishment of new industries, private sector growth through acquisition and increased regional economic integration.
The establishment of DIFC is the next logical step in Dubai's economic development and aims to cement the Emirate as the region's main financial hub.
Objectives of the DIFC The DIFC has been designed to:
- attract regional liquidity back into investment opportunities within the region and contribute to its overall economic growth
- facilitate planned privatisations in the region and enable initial public offerings by privately owned companies, giving impetus to the programme of deregulation and market liberalization throughout the region
- create added insurance and reinsurance capacity - 65 per cent of annual premiums are re-insured outside the region
- develop a global centre for Islamic finance - this is now an over $400 billion international market serving large Islamic communities stretching from Malaysia and Indonesia to the United States
Since its launch, DIFC has attracted international firms such as Merrill Lynch, Morgan Stanley, Goldman Sachs, Mellon Global Investments, Barclays Capital, Credit Suisse, Deutsche Bank and many other leading international financial institutions who have all applied for or received a licence to operate from DIFC.
Benefits of Establishing in DIFC
Institutions receive a number of benefits when joining DIFC, including:
- 100 percent foreign ownership
- Zero percent tax rate on income and profits
- A wide network of double taxation treaties available to the UAE incorporated entities.
- No restriction on foreign exchange
- Freedom to repatriate capital and profits without restrictions
- World class English language court system based on the common law, with judges internationally renowned for handling commercial disputes.
- High standards of laws, rules and regulations
- Ultra-modern office accomodation and sophisticated infrastructure
- operational support and business continuity facilities of uncompromisingly high standards.
DIFC Sectors of Focus
DIFC focuses on the following main financial services sectors:
- Banking & Brokerage
- Capital markets
- Wealth management
- Re-insurance and Captives
- Islamic finance
- Ancillary services
• Banking and Brokerage/ Capital Markets:
Businesses in the region have traditionally sourced their funding from domestic lenders at often inefficient, expensive and illiquid cost. Similarly, underdeveloped capital markets have forced local investors and borrowers to seek opportunities in international markets. However, the growing programme of liberalisation and privatisation in the region, a rising need for IPOs and secondary offerings, the growth of foreign direct investment and, rapid expansion of regional trade, is driving demand for more sophisticated forms of financing. DIFC will act as a catalyst to facilitate the mobilisation of capital. It intends to be the regional gateway for investment banks and other financial institutions who wish to establish underwriting, M&A advisory, venture capital / private equity, foreign exchange, trade finance and capital markets operations to service this large and relatively untapped market.
• Wealth Management:
DIFC provides an onshore centre offering a wide range of investment opportunities, such as: mutual funds, exchange traded funds, open and closed ended investment companies, index funds, hedge funds, consultant wrap accounts and Islamic compliant funds. Further, DIFC will provide an ideal environment and a highly skilled work force to asset management firms and private banks for their fund registration and administration functions.
• INSURANCE, Reinsurance and Captives:
The penetration and density of insurance in the region has been significantly below average world levels. Statistics show that the sum of insurance premiums in the Middle East is much below the developed or other developing markets. However, with economic growth, industrialisation and improved regulation, the region is experiencing a changing attitude towards risk and an increased awareness of the need for insurance. Due to slow growth in more mature markets, the world’s insurance and reinsurance companies are now assessing markets such as the Middle East. DIFC has set out to create a global insurance hub by attracting global reinsurance companies, brokers, captives and other service providers.
• Islamic Finance:
Islamic finance is a US$400 billion dollar industry, growing at a rate of over 15% per annum and with expected double-digit growth rates for the next 15 to 20 years. DIFC’s ambition to become the global hub for Islamic finance comes at a very interesting time in the market’s development. Each Islamic market has developed relatively independently, setting its own regulations and standards, developing a wide variety of products with different benchmarks and pricing techniques. This has now been recognised as untenable if the industry is to grow, respond to the needs of Islamic investors and be given global recognition. There is increasing recognition that collaboration is the key to competitiveness. DIFC’s ground-up approach puts Dubai in a leading position to establish global standards for Shari’ah compliance that will foster cross-border trading and product innovation.
• Ancillary Services:
In addition to the above sectors of financial activity, DIFC will continue to attract high-calibre, reputable ancillary service providers, thereby providing a fully robust platform to support the operational needs of financial institutions. These services will include accounting and legal practices, actuaries, management consultants, recruitment firms, and market information providers, among others. The expertise that the world’s major international professional services firms bring to DIFC will complete the process of building a world-class international financial centre. DIFC offers these service providers with the kind of unique opportunities that can come only from locating their operations in a hub which is in close physical proximity to a wealth of business opportunities, including significant cross-border synergies across multiple industries and functions.
Regulatory framework
As with established international financial centres, at the heart of the overall DIFC concept is an independent regulator, the Dubai Financial Services Authority (DFSA).
The independent status of the centre is further enhanced by the establishment of the DIFC Courts. The laws establishing the DIFC Courts have been designed to ensure the highest international standards of legal procedure thus ensuring that the DIFC Courts provide the certainty, flexibility and efficiency expected by the global institutions operating within DIFC.
- DUBAI FINANCIAL SERVICES AUTHORITY (DFSA)
The Dubai Financial Services Authority (DFSA) is the independent regulatory authority responsible for the regulation of financial and ancillary services conducted in or from the Dubai International Financial Centre.
The DFSA’s primary functions include policy development, enforcement of legislation and authorisation and supervision of DIFC licensees. It manages companies offering asset management, banking, securities trading, Islamic finance, and re-insurance, and it regulates the Nasdaq Dubai exchange.
The DFSA was created using principle-based primary legislation modelled closely on that used in London and New York, and the DFSA regulatory regime operates to standards that meet or exceed those applying in the world's major financial centres.
A world-class regulator, DFSA is responsible for ensuring that DIFC is one of the best regulated financial centres in the world. (www.dfsa.ae)
The DIFC Courts is an independent judicial system established under laws enacted by The Late His Highness Sheikh Maktoum bin Rashid Al Maktoum, Ruler of Dubai in September 2004. It has jurisdiction over matters arising from and within DIFC. The DIFC Courts is an independent court system set up to uphold the provisions of DIFC laws and regulations. They provide the protection of an English language, common law court system, with an internationally renowned bench of judges versed in commercial disputes, to ensure transparent and efficient justice in civil and commercial matters in or relating to the Centre.
The overriding objective of the DIFC Courts is to deal with cases justly and to help parties settle cases. Designed to deal specifically with the sophisticated transactions conducted within DIFC, the DIFC Courts provide comprehensive legal redress in civil and commercial matters. Along with offering the highest standards in legal dispute resolution and a judicial system based on international best practices, DIFC Courts provide a small claims tribunal which is unique in the region. In January this year, DIFC Courts appointed the first female judge in the UAE and announced that two Emirati judges had become common-law International Judges. (www.difccourts.ae).
Firms wishing to carry out financial services in DIFC need to be authorized by the DFSA, which requires a demonstration of fitness and propriety, some guidelines of which include:
1) An applicant’s relationship with a group entity and the regulatory history of the group. Firms which are subject to regulatory supervision in other comparable jurisdictions will be in a better position to demonstrate their ability to comply with the stringent regulatory requirements of DIFC.
2) An applicant’s capability in terms of financial resources, human resources and technical competency.
3) An applicant’s ability to devise and maintain appropriate systems and procedures to support, monitor and manage its affairs, resources and regulatory obligations, including sound anti-money laundering policies and procedures.
4) A sound business plan and the experience and qualification of the organisation and the key personnel within it.
5) The ability and willingness of an organisation to comply with regulations including levels of capital adequacy, high standards of business conduct and a robust risk management system.
When considering an application for a license and assessing the fitness and the propriety of the applicant, the DFSA will also consider:
- Any matter which may harm the integrity or reputation of the DFSA or DIFC;
- The activities of the applicant, the associated risks and accumulation of risks that those activities pose to the DFSA’s objectives
- The cumulative effect of factors which, if taken individually, may be regarded as sufficient to give reasonable cause to doubt the fitness and propriety of an applicant. An applicant must be able to demonstrate that it has compliance arrangements, including processes and procedures that will enable it to comply with all applicable rules.
Authorized Firms must comply with the Conduct of Business (COB) Module which entails adherence to the following best principles and practices:
1) Integrity
2) Due skill, care and diligence
3) Management, systems and controls
4) Resources
5) Market conduct
6) Conflicts of interest
7) Suitability
8) Customer assets and money
9) Relations with regulators
DIFC subsidiaries
DIFC Investments operates and manages all DIFC subsidiaries, the development of the Centre’s investment strategy and policies. It works to form strategic alliances to further the goals and objectives of DIFC.
As the investment arm of DIFC, the organisation acquired UK-based software licensing and professional services business SmartStream Technologies from TA Associates in November 2007.
In June 2007, DIFC Investments announced the issue of a US$1.25 billion Sukuk, the largest rated and the largest straight Sukuk to come out of the region.
Established in April 2006, DIFC Investments is a subsidiary of the Dubai International Financial Centre Authority.
The DIFC Authority is responsible for developing strategy and providing direction and supervision to the Dubai International Financial Centre. It works to attract licensees to operate in DIFC and creates laws and regulations that govern non-financial services activities.
One of the DIFC Authority’s main tasks is to develop the financial services industry in Dubai.
In January 2008, the DIFC Authority was awarded an International Organisation for Standardisation (ISO) certification in recognition of the DIFC Authority's commitment to continuous quality management and improvement of the services and operations at DIFC.
Created within the Dubai International Financial Centre, DIFC Lifestyle offers a unique environment comprising high-end retailers, world-class restaurants and the best in international contemporary art and entertainment.
Known as Dubai’s best kept secret, DIFC Lifestyle has transformed the financial district into a new centre for retail and culture, accessible to Dubai's residents and visitors. DIFC Lifestyle’s goal is to develop Dubai into a lifestyle choice as well as a professional hub.
The exclusive precinct hosts an eclectic mix of art, culture and stunning architecture and is open to the public on weekdays from 10am to 10pm and on weekends from 10am to midnight.
With over 175 nationalities working in a variety of sectors within the DIFC community, this diversity will be reflected in the assortment of activities and experiences on offer. (www.difc.ae/lifestyle)
DIFC INVESTMENTS SUBSIDIARIES
- The DIFC Centre of Excellence
The DIFC Centre of Excellence was established as a hub for executive and professional development and education. The centre was created by the Dubai International Financial Centre (DIFC) and will reach out to professionals within the Middle East, North Africa, Eastern Africa, the Caspian Subcontinent and the Indian Subcontinent. The centre is situated within DIFC, the world’s fastest growing financial centre and at the heart of cosmopolitan Dubai.
The DIFC Centre of Excellence aims to develop a talent pool of professionals for and from the region through partnering with top ranking business schools, professional development providers, corporate universities, as well as certification, accreditation and rating organizations.
Currently the partners and programmes include: London Business School (EMBA, executive education programmes, and custom designed programmes); Cass Business School (Offering the world’s first EMBA with a specialization in Islamic Finance in the world from DIFC, Energy or General Management and Finance); Queens School of Business (executive education programmes); Securities and Investments Institute (SII) (finance training, examination and certification activities); the Chartered Insurance Institute (CII) (membership in the CII and Certified Insurance and Finance programmes); and the International Bar Association (IBA). In order to accommodate the needs and interests of busy professionals, the DIFC Centre of Excellence offers a mix of programmes, from one day workshops all the way to a higher degree.
Over recent years, Dubai has increasingly been recognised as an international centre for art and culture with the help of Art Dubai, an annual event showcasing international contemporary art.
Following the overwhelming success of its inaugural event in 2007, the event has become a cornerstone for the rapidly growing art community in the Middle East. Art from 80 galleries across the Middle East, Asia, Europe, North and South America, North Africa and Australia will be featured at Art Dubai 2008 from 19-22 March.
Art Dubai places emphasis on galleries from the emerging markets of the Middle East, South and Central Asia and the Far East, featuring them alongside established international galleries from the West.
Art Dubai is a proud partner of START, an art education programme founded in conjunction with the Al Madad Foundation. The programme offers workshops in photography, painting, film-making, drawing, printing and sculpture to children with physical disabilities, a history of physical abuse, refugees in Lebanon and children in need in the UAE. (www.artdubai.ae)
- HAWKAMAH – The Institute for Corporate Governance
Hawkamah, the Institute for Corporate Governance is an international association of corporate governance practitioners, regulators and institutions whose primary mandate is to develop corporate governance best practices in the Middle East region.
Launched in February 2006, Hawkamah is working to create a system of governance that promotes institution building, corporate sector reform, good governance, market development and increased investment and growth across the region.
The Institute aims to foster investor confidence through the development of efficient financial markets and banking systems, and to help shape the changing corporate governance landscape in the MENA region.
The annual Hawkamah conference focuses on the key issues such as corporate governance, international trends to serve financial market stability, family governance and equity market. The inaugural conference brought together over 300 market players from across the region and issued the Dubai Declaration which charted the corporate governance agenda for the Middle East and North Africa.
Hawkamah was established in partnership with the Dubai International Financial Centre (DIFC), Organisation for Economic Cooperation and Development (OECD), UAE Ministry of Finance and Industry, Centre for International Private Enterprise (CIPE), International Finance Corporation (IFC), the Union of Arab Banks (UAB), Dubai School of Government (DSG), Young Arab Leaders (YAL), and the Institute of Management Development (IMD).
The name Hawkamah combines three Arabic words: 'Hukuma' (government), 'Hukm' (judgement) and 'Hikmah' (wisdom). (www.hawkamah.org)
Waqf Trust Services is a global provider of Shari’a compliant trust products, offering a diverse range of trust services for corporate, individual and charitable-based clients. The company’s primary activities include asset protection, succession planning and the preservation of family wealth.
Waqf’s broad spectrum of services is designed to meet the needs of families, corporations and charitable trusts, allowing each to invest wisely while adhering to Shari’a guidelines. Charity is an essential aspect of Shari'a compliant finance and Waqf takes great pleasure in promoting and contributing to a number of well deserving causes in the region.
The Asset Management and Advisory arm of Waqf is responsible for portfolio management services, investment advisory services and product development. Its technical expertise lies in the research, structure and management of discretionary investment portfolios. In addition, under a specific mandate from its clients, it can provide a broad range of comprehensive advisory services. The Asset Management and Advisory unit of Waqf also works closely with leading regional and global investment managers to develop a range of investment products - by leveraging international experience with that of its in-house Sharia expertise.
In February this year, Waqf signed a Memorandum of Understanding with the Awqaf & Minors Affairs Foundation (AMAF) to cooperate and coordinate activities and endeavours for economic and social development within the UAE community. AMAF is a Dubai Government initiative to adopt and care for minors, managing and investing their funds until they come of age.
Waqf Trust Services Ltd (Waqf) has been jointly established by DIFC Investment LLC and Dubai Islamic Bank PJSC (DIB) under the laws of the Dubai International Financial Centre. (www.waqf.com)
Waqf Trust Services is regulated by the Dubai Financial Services Authority (DFSA).
- MUDARA – THE Institute of Directors (IOD)
Mudara – The Institute of Directors (IOD) was established by DIFC in February 2008 to facilitate professional development through education, networking and services to its members.
The organisation, a representative body for directors and professionals in leading corporations in the MENA region, aims to make a positive contribution to the performance of local enterprises and economies.
Mudara – The Institute of Directors will provide accredited education programmes for private and public company directors and its events will allow senior managers to share their skills and knowledge with a wide group of young leaders.
Institute members will benefit from the experience and expertise of a network of IOD branches and partnerships with recognised affiliate organisations.
Its vision is to be the region’s leading international best practice professional membership organisation for directors.
- DIFC- LCIA Arbitration Centre
Early in 2008, Dubai was positioned as an international arbitration jurisdiction with the establishment of the DIFC-LCIA Arbitration Centre. A joint venture with the London Court of International Arbitration (LCIA), the centre will offer dispute resolution services to business and commercial organisations worldwide.
The new centre complements the independent legal and regulatory framework of DIFC and provides companies with an efficient, neutral and cost-effective alternative to the Courts. It will also work to create an efficient working environment for local and international companies to prosper by offering an information service and access to publications and organising symposia and conferences on dispute resolution.
In addition to having access to the LCIA’s expertise, the DIFC Arbitration Centre has access to a database of world-class legal and non-legal arbitrators.
The London Court of International Arbitration is one of the longest-established international institutions for commercial dispute resolution in the world. It provides efficient, flexible and impartial administration of dispute resolution proceedings for all parties, regardless of their location, and under any system of law.
The DIFC Arbitration Law no.8 of 2004 was introduced to meet the needs of the region's unique market conditions and dynamics. It is universally applicable and compatible with both civil and common law systems. (www.difcarbitration.com)
DIFC Global provides premium office facilities that support companies in developing their business globally. Currently established in Dubai, London and Hong Kong, DIFC Global is creating a network of premium offices in the world’s major financial hubs.
DIFC Global’s offerings are ideal for companies looking to conduct feasibility studies, evaluate future potential, collaborate on joint ventures, or scout for new business in the world’s largest established and emerging financial markets.
Flexible lease terms and workspace options enable businesses to avoid large upfront investments in the early stages of their market foray. From executive suites and meeting rooms to private booths and individual work stations, companies can rent office space on a daily, weekly, monthly or annual basis. (www.difcglobal.ae)
SmartStream, a company acquired by DIFC Investments, provides enterprise-wide, real-time Transaction Lifecycle Management (TLM) solutions to more than 75 of the world's top 100 banks. SmartStream's solutions enable clients to tackle the barriers to Straight Through Processing (STP) and create more efficient, customer focused, cost-effective, compliant operations. Founded in 2000, SmartStream has expanded and evolved from a dedicated focus on reconciliations to become a leading provider of software solutions that bring automation and control to the middle and back office. (www.smartstream-stp.com)
DIFC Partners
Nasdaq Dubai (formerly the Dubai International Financial Exchange) is the only international financial exchange serving the region between Western Europe and East Asia. It welcomes regional as well as global issuers that seek regional and international investment. The exchange currently lists shares, derivatives, structured products, Sukuk (Islamic bonds) and conventional bonds.
The majority shareholder of Nasdaq Dubai is Borse Dubai with a two-thirds stake. Nasdaq OMX Group owns one third of the shares.
Nasdaq Dubai, which evolved from the Dubai International Financial Exchange (DIFX), launched by the Dubai International Financial Centre (DIFC) in 2005, enables regional and international investors to share in the rapidly growing wealth of the Middle East, North Africa and India. The financial exchange operates according to standards comparable to those of leading exchanges in New York, London and Hong Kong.
Nasdaq Dubai is regulated by the Dubai Financial Services Authority (DFSA) and located in the Dubai International Financial Centre. (www.nasdaqdubai.com)
Infrastructure and location
The physical infrastructure is also a major factor in enticing international business to locate in DIFC. So much more than just a financial district, DIFC is planned to be a ‘city within a city’ that will comprise of a unique integration of buildings and open spaces with over 65% of the total site landscaped with specific green zones. It will ultimately provide over several million square feet of ultra modern office space, residential and leisure areas which will include offices, serviced apartments, hotels, shops, restaurants, a museum, an art gallery and a performing arts centre.
Guaranteeing DIFC’s success is its location. The cosmopolitan city of Dubai has a safe, secure, economically, politically and socially stable environment with superb infrastructure and a highly skilled, educated and multi-cultural workforce.
With such a sophisticated physical infrastructure, a visionary leadership and a stringent regulatory framework, DIFC is poised to tap the largest emerging market for financial services within a region of 2.2 billion people and a combined economy worth $2.3 trillion in terms of GDP, growing at an annual rate in excess of 5 per cent. The world’s newest international financial centre has become a reality and both the region and the world’s financial community are set to benefit.
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