Fund managers' concern at SCA rules

Banks stand to benefit from proposed SCA regulations on fund management, but small asset management houses warn that they could lose out.

Gregor Stuart Hunter

June 12, 2011

Updated: June 12, 2011 04:00 AM

 

The Emirates Securities and Commodities Authority (SCA) is preparing to take control of the UAE’s fund management industry with new regulations aimed at protecting buyers from misleading investments.

But fund managers warn that despite intentions to shield consumers, the new regulations go too far in favouring banks and could inhibit growth for smaller companies.

The proposed regulations, expected to be published this summer, require funds to seek SCA and Central Bank approval, and force greater transparency over their investments and capital requirements.

The SCA is also expected to levy a fee on each fund launched. The new rules do not apply to those funds domiciled in the Dubai International Financial Centre.

The regulator met asset managers on Thursday to discuss the draft proposals on fund management policy, currently implemented by the Central Bank.

However, while the proposals are expected to increase confidence among retail investors, fund managers said the impact on small asset-management houses would be much greater than on larger institutions such as banks.

“Everybody is concerned because it’s going to be adding another layer of fees and approvals,” said Tariq Qaqish, a director and fund manager at Al Mal Capital. “It’s going to slow down the business cycle.”

A distinction between retail investors who need protecting and sophisticated investors, including wealthy individuals and institutional buyers who are qualified to make more risky investments, was a key point absent from the new rules, fund managers said.

“Investment firms aren’t really interested in the large audience,” said Fathi ben Grira, the chief executive of Mena Corp, a financial services firm offering asset management and brokerage services. “They’re not looking for the public in general, but banks with networks can target that [market].

“But for the smaller players, why add more difficulties?”

Regulatory regimes in other countries allowed smaller financial services companies to offer different products to those available from high-net worth and institutional investors, creating niche markets.

“You have to differentiate,” Mr Qaqish said. “If you’re targeting retail investors you have to be stricter from a regulatory point of view.”

The extra layers of regulatory approval were also expected to add more red tape to the process of setting up funds.

Banks have attempted to tap the domestic market for wealth management, which has traditionally been conducted by Middle East investors in western countries such as the UK and Switzerland.

First Gulf Bank, National Bank of Abu Dhabi and Emirates NBD are seeking to grow their asset management capabilities.

Abu Dhabi’s Vision 2030 Plan calls for the development of the emirate’s financial services sector, with asset management garnering particular attention of late.

The new regulations would help spur growth among the UAE’s nascent fund management industry, said Raj Madha, a financial analyst at Rasmala Investment Bank.

“It would create a little bit more transparency over marketing, and perhaps add competition – hopefully expanding the market.

“By giving additional protection to the customer, that should also mean customers are more willing to trust their assets to fund management companies based here.”

The tightened regulation could also result in lower fees, he added.

“Greater transparency may enable fund managers to grow their market and bring pricing structures down.”

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