Securities and Commodities Authority, Abu Dhabi, July 24, 2024: The Securities and Commodities Authority (SCA) issued a decision regulating special purpose vehicles (SPVs) as part of its ongoing efforts to enhance the regulatory framework of the securities sector in the UAE, in line with the best international standards and practices, and boost the UAE’s standing as a leading global hub for business and investment.
Issued by the board of directors, the decision aims to enhance the effectiveness of the securitization and sukuk regulations, advance the investment funds industry in the UAE, and provide alternative financing opportunities for joint stock companies, thus promoting the stability and development of domestic financial markets.
His Excellency Mohamed Ali Al Shorafa, the SCA’s Chairman, said that the decision mirrors the SCA’s commitment to promoting the legal and regulatory infrastructure of financial markets and providing innovative and resilient mechanisms that meet market needs and help boost its ability to deal with economic challenges and changes, stressing that the SCA will continue its commitment to enhance the competitiveness of the UAE capital markets and bolster the UAE’s status as an international sustainable financial hub.
For her part, Her Excellency Dr. Maryam Buti Al Suwaidi, the SCA’s CEO, called the decision a positive step to encourage securitization and sukuk issuance, promote the investment funds industry, and enable public joint stock companies to transfer assets to SPVs, thus boosting their ability to issue sukuk and debt instruments backed by these assets, which help attract more investments to domestic capital markets.
About the decision
The SCA explained that the decision comes in implementation of Federal Decree Law No. 32 of 2021 on Commercial Companies, which conferred on it the power to draft provisions regulating SPVs. It said that the regulation was prepared in accordance with the best international practices and in consultation with industry experts, advisors, specialists, and related parties.
The decision includes 14 articles covering the scope of application, classification and nature of SPVs, SPV incorporation and licensing process, obligations of the SPV manager, SPV dissolution and liquidation procedures, and the SCA’s powers regarding inspections, monitoring, violations, and penalties.
The decision defined an SPV as a company set up for the purpose of maintaining the liabilities and assets associated with a particular financing transaction separate from the liabilities and assets of the parent company. The SPV is used for transactions involving credit, borrowing, securitization, issuing bonds, and transferring risks associated with insurance, reinsurance, and derivatives.
According to Article 2, the provisions of the decision apply to SPVs incorporated in the UAE, qualified SPVs incorporated in a free zone in the UAE, and SPV founders and managers. They also apply to SPV auditors, advisors, service providers, and any other associated or related entity or person. The provisions, however, do not apply to SPVs incorporated by federal or local government entities or companies wholly-owned by any of them, unless their issues are offered to the public, SPVs incorporated in a financial free zone in the UAE, and unqualified SPVs incorporated in a free zone in the UAE.
The decision also stated that an SPV can be created by securitization companies, investment fund management companies, joint stock companies, and legal or natural persons. It provided a mechanism for the management of the SPV by an ‘SPV manager’. Under this mechanism, the SPV must not be used for purposes or engaged in activities or tasks other than those for which it was incorporated. The SPV manager must refrain from conducting mergers, transitioning the SPV to a different legal form, or dividing the SPV, in addition to ensuring compliance with the requirements provided for in the relevant legislation.
According to the decision, the SPV founder must apply to the SCA for approval of the SPV incorporation and licensing using the relevant form, and must attach the supporting documents. The SCA will make a decision approving or rejecting the application within five working days from the date of submission and will provide reasons in case of rejection.
To read more about the decision, click here.