SCA Introduces Regulation For Special Purpose Vehicles To Elevate UAE Securities Sector

The Securities and Commodities Authority (SCA) has introduced new regulations for special purpose vehicles (SPVs) to strengthen the UAE's securities sector. This move aims to enhance the country's position as a global business and investment hub.

Mohamed Ali Al Shorafa, Chairman of the SCA, highlighted that this decision reflects their dedication to improving the legal and regulatory framework of financial markets. He emphasised the importance of innovative mechanisms to address economic challenges effectively.

The decision, issued by the board of directors, seeks to improve securitisation and Sukuk regulations. It also aims to advance the investment funds industry in the UAE, providing alternative financing options for joint stock companies. This will promote stability in domestic financial markets.

Dr. Maryam Buti Al Suwaidi, CEO of the SCA, described the decision as a positive step towards encouraging securitisation and Sukuk issuance. She noted that it would enable public joint stock companies to transfer assets to SPVs, enhancing their ability to issue Sukuk and debt instruments backed by these assets.

The SCA explained that this regulation follows Federal Decree Law No. 32 of 2021 on Commercial Companies. The law grants the SCA authority to draft provisions regulating SPVs. The regulation was developed with input from industry experts and aligns with international best practices.

Scope and Application of New Regulations

The new regulation comprises 14 articles detailing various aspects such as SPV incorporation, licensing processes, obligations of SPV managers, and procedures for dissolution and liquidation. It also outlines the SCA's powers regarding inspections, monitoring, violations, and penalties.

Article 2 specifies that these provisions apply to SPVs incorporated in the UAE or qualified SPVs in free zones within the UAE. They also cover SPV founders, managers, auditors, advisors, service providers, and other related entities or persons.

Exemptions and Management Mechanisms

The provisions do not apply to SPVs created by federal or local government entities unless their issues are offered publicly. Additionally, they exclude SPVs incorporated in financial free zones or unqualified SPVs in free zones within the UAE.

An SPV can be established by securitisation companies, investment fund management firms, joint stock companies, or legal/natural persons. The regulation provides a mechanism for managing an SPV through an 'SPV manager'.

Obligations of SPV Managers

Under this mechanism, an SPV must only engage in activities for which it was created. The manager must avoid mergers or changing the legal form of the SPV while ensuring compliance with relevant legislation requirements.

The decision defines an SPV as a company designed to keep liabilities and assets related to specific financing transactions separate from those of its parent company. These transactions may involve credit, borrowing, securitisation, issuing bonds, or transferring risks associated with insurance and derivatives.

Approval Process for Incorporation

The founder must apply for approval from the SCA using a specified form along with supporting documents. The SCA will decide on approval or rejection within five working days from submission date and will provide reasons if rejected.

This initiative underscores the SCA's commitment to enhancing UAE capital markets' competitiveness while reinforcing its status as a sustainable international financial hub.

With inputs from WAM