ADGM has introduced significant changes to its existing CSP and registered agent regime. Following a consultation process,the ADGM has published its framework for the regulation of Company Service Providers (CSP Framework). Approved by ADGM’s Board of Directors on the 17 March, the Framework will come into force 12 April 2021.
VIEW ADGM PRESS RELEASE & CSP FRAMEWORK HERE
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New Controlled Activities
Significant amendments have been made to ADGM’s Commercial Licensing Regulations 2015 (Controlled Activities) Rules 2021, splitting service provision between either ‘Providing Company Services’ including provision of registered office, or alternatively being limited to acting as a “Registered Office Provider”.
Acting participants will be required to register as a Company Service Provider if :
- Act as an incorporation agent in connection with the incorporation or registration of bodies corporate in the Abu Dhabi Global Market,
- Provide company services to anybody corporate incorporated or registered under the Companies Regulations 2020 or the Foundations Regulations 2017,
- Act as a Registered Office Provider,
- Provide directors, company secretaries, councillors, registered agent, or other officers to any body corporate incorporated or registered, or to be incorporated or registered, in the Abu Dhabi Global Market, or
- Provide nominee shareholders of companies to anybody corporate incorporated or registered in the Abu Dhabi Global Market.
One will however be required to register as a Registered Office Provider if:
- Provide registered office services to any body corporate incorporated or registered, or to be incorporated or registered, in the Abu Dhabi Global Market.
General Exclusions include:
- An individual if he carries on an activity solely as an employee who is employed or appointed under a contract of service.
- A person does not carry on a controlled activity to the extent that he exercises a power or performs a duty or function:
- of a public nature;,
- on behalf of a public authority;, or
- in connection with public administration, law enforcement, government or regulation.
Requirements on CSPs
The CSP Framework introduces a number of regulatory requirements on CSPs, including a requirement to satisfy the Registrar that an applicant for license to provide company service meets, on being granted a license, specific conditions applicable to the controlled activity, namely:
- the controlled activity is consistent with the objectives of the Abu Dhabi Global Market,
- the applicant is sufficiently capitalised, skilled and qualified to carry on the controlled activities which the applicant proposes to carry on in for from the Abu Dhabi Global Market,
- the legal form of the applicant is suitable to the controlled activities which the applicant proposes to carry on in or from the Abu Dhabi Global Market,
- the registered office or branch from which the applicant proposes to carry on the controlled activity is suitable for such purposes, and
- in the case of applicants who hold or have previously held a license, the applicant has complied in all material respects with the conditions of such license.
These requirements come on top of standard policies, controls and procedures related to providing services in accordance with any outsourced arrangements under the UAE Economic Substance regime.
Client Money Rules
The regulations also introduces additional obligations for CSPs holding or controlling ‘client money’, under the Commercial Licensing Regulations 2015 (Client Money) Rules 2021.
Client Money Rules are designed to provide protection to clients, safeguarding money belonging to them against fraud, misappropriation or misuse. The Rules have been benchmarked on similar requirements of common law jurisdictions including Guernsey and are proposed to be introduced in a risk based, proportionate matter, taking the nature, scale and complexity of the CSP into account.
CSPs that will hold or control client money will be required to comply with the client money provisions and have in place the necessary policies, systems and controls relating to the handling and segregation of Client Money.
Transition Period
ADGM will be publishing detailed guidance on the transition and application process on commencement of the CSP Framework on 12 April 2021.
CONCLUSIONS
The new regime is a game-changer for ADGM CSPs and companies affected by the proposed regime.
It introduces a higher standard of governance and control to an area highlighted in the recently published MENA FATF evaluation of the UAE, and brings ADGM in line with international standards and practices. It is likely to be monitored by other Free Zones and International Business Centres seeking to attract meaningful investment.
Its overall effectiveness will have to be tested going forward but CSPs serious about their business should welcome these changes – we at M/HQ do.
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