GCC Quarterly Review - Q2 2018

• UAE issuers issuing or offering Islamic securities in the UAE or overseas; and
• foreign issuers (subject to a similar supervisory authority) offering Islamic securities in the UAE.

An emerging view in the market is that the resolution applies to public offers – but not private placements - by foreign issuers of sukuk to investors in the UAE. This interpretation is consistent with the approach of the SCA prevalent in existing regulations whereby private placements by foreign issuers to certain types of investors in the UAE (which is common) should not trigger SCA regulatory requirements and oversight. Nevertheless, given the recent adoption of the new regulation and the absence of formal guidance, the application of the new regulations to an issuance or offering of sukuk in the UAE should be considered on a case by case basis and legal advice sought.

Modernised movable assets security regime in Saudi Arabia: Saudi Arabia has introduced a modernised regime which should improve the ability for lenders to take effective security over a range of movable assets granted as credit support for commercial or professional debts. The new Commercial Pledge Law and supporting implementing regulations were issued pursuant to Royal Decree No.M/86 dated 24 April 2018.

The regime allows lenders to take non-possessory security over a range of present and future moveable assets (including receivables, bank accounts, inventory, unlisted securities), to register that security at a new Unified Register for Commercial Pledges (which ensures priority) and the ability to enforce using self-help remedies or traditional court-led processes. The new law and accompanying regulations clarify details of the form and content of the security agreement. Regulations relating to the operation of the Unified Register for Commercial Pledges, the procedure and fees to register security at the register and to search the register are expected. Certain types of asset classes already regulated under separate regimes are excluded from the scope of the new law (such as aircraft and intellectual property). For some other types of movable assets, the interplay between the new regime and existing security laws may be complex. In some circumstances, additional requirements may apply, for example relating to perfection. Second and subsequent ranking security interests over movable assets are envisaged and priority rules established by the new law. This development follows a similar overhaul of the regime for taking security over movable assets in the UAE (read more).

Revisions to the Saudi Arabian companies law regime New provisions relating to Saudi Arabian limited liability companies(LLC) and joint stock companies (JSC) were enacted in April, by way of an amendment to the Saudi Arabian Companies Law (Royal Decree No.M/01 dated 10 November 2015G). LLCs and JSCs may need to update their constitutional documents to reflect these changes, if the Ministry of Commerce and Investment issues revised template constitutional documents for these entities. The key points affecting LLCs and JSCs in Royal Decree No.M/79 dated 11 April 2018 (1437H/2015G)) include:

• Payment of the entire share capital is no longer required upon incorporation of LLCs. Instead, the capital amount must be deposited in one of the licensed banks in Saudi Arabia within 90 days following the Commercial Registration Certificate being issued.

• Procedures relating to transferring shares and pre-emption rights in LLCs are clarified. In particular, the share price when transferring shares to third parties will be based on the agreed amount between shareholders and not restricted to the fair value.
• Shareholder(s) representing at least 10 per cent. of the capital of an LLC may call a shareholder meeting. Previously, this threshold was 50 per cent.
• Shareholders in a JSC may bring proceedings against the company, if certain conditions are satisfied. The JSC bears the costs of the proceedings (irrespective of the result of the claim).
• The board of directors of a JSC may be liable for losses and damages caused to the JSC as a result of actions, contracts and transactions made on behalf of the company.

Saudi Arabia adopts ISIC classifications relating to foreign investment licenses: Foreign investors wishing to invest in Saudi Arabia for the first time, and those seeking a licence renewal for an existing business, will now see the regulator assess their applications for a foreign investment licence according to new classification structure. The Saudi Arabian General Investment Authority (SAGIA) has recently adopted the International Standard Industrial Classification (ISIC) - a United Nations industry classification structure of economic activities used by many countries around the world – to be applied when issuing foreign investment licences. Companies already holding foreign investment licences issued under the previous classification regime do not need to amend these and are able to carry on their businesses. Saudi Arabia has been actively taking steps to liberalise foreign investment rules in the Kingdom, most recently SAGIA removed several foreign investment restrictions, introduced fast-track procedures for obtaining foreign investment licenses and extended foreign investment licences from one year to a period of up to five years. These developments are in line with the Saudi Vision 2030 and the National Transformation Plan which focuses in increasing direct foreign investment in Saudi Arabia.

ADGM launches crypto asset regulatory framework: The Abu Dhabi Global Market (ADGM) has launched its framework to regulate crypto asset activities conducted in or from the ADGM, following a public consultation in May. This regime is the first of its kind from a regulator in the MENA region.

The ADGM Financial Services Regulatory Authority (FRSA) will now regulate the activity of “Operating a Crypto Asset Business”. The scope of the new regulated activity includes crypto asset activities undertaken by exchanges, custodians and other intermediaries in the ADGM. This comprises general activities, such as buying or selling Accepted Crypto Assets as GCC Quarterly Review – Q2 2018 www.linklaters.com principal or agent, making arrangements with a view to another person buying, selling or providing custody of Accepted Crypto Assets and advising on the merits of buying or selling Accepted Crypto Assets. Specified activities will attract additional regulatory requirements, including Operating a Crypto Asset Exchange, or Operating as a Crypto Asset Custodian. The FRSA is not proposing to regulate certain other activities such as the development, dissemination or use of software for the purpose of creating or mining crypto assets and the transmission of crypto assets. The new regime is enacted into ADGM law by amendments to Financial Services Markets Regulations 2015 (FSMR), the Conduct of Business Rulebook (COBS), the Fees Rules (FEES), Market Infrastructure Rulebook (MIR) and the Glossary (GLO). The FSRA has also published guidance on the new regime and an application form for those wishing to operate a crypto asset business in or from the ADGM.

The crypto asset regulatory framework supplements the FSRA's Guidance on Initial Coin/Token Offerings and Crypto Assets released in October 2017, in which the ADGM clarified its regulatory treatment of initial coin offerings in respect of coins or tokens that have the characteristics of a Security, the FSRA’s treatment of crypto assets as commodities and its regulation of derivatives of crypto assets within the ADGM. Read more about the ADGM.

ADGM becomes first GCC member of international data protection network: The ADGM Registration Authority, the data protection regulator of ADGM, is now a member of the Global Privacy Enforcement Network (GPEN). GPEN is an internationally recognised network of data protection authorities, which currently has members from over 50 countries. Its purpose is to facilitate cross border enforcement of privacy protection laws and strengthening global privacy and data protection. The ADGM Registration Authority is the first GCC regulator to become a member of GPEN.

Kuwait to postpone VAT implementation to 2021: Kuwait has recently announced that it will delay the implementation of value-added tax (VAT) to 2021. The GCC Member States (Saudi Arabia, Bahrain, Kuwait, Qatar, Oman and the United Arab Emirates) agreed to implement VAT regimes based on the principles agreed in the Unified GCC Agreement for Value Added Tax, with a deadline of 1 January 2019. Saudi Arabia and the UAE were the first to implement VAT on 1 January 2018. Read more.

Brexit: financial services passporting considerations for Middle East branches: Global financial services firms that have their European headquarters in the UK and rely on the right to passport into European Economic Area (EEA) countries may need to consider whether to restructure their business models when the UK leaves the EU, unless a form of market access is retained by the UK’s exit agreement with the EU. Any restructuring arrangements will need to be analysed as to whether they have any regulatory impact in other jurisdictions, including in the Middle East, in which branches of UK-licensed financial services firms do business. While local Middle East licenses should not rely on any passporting rights linked to a firm’s UK licence, other key issues to consider may include local licensing conditions, consent and notification requirements.

Linklaters has extensive experience advising financial institutions on the consequences of Brexit which provides us with a uniquely broad picture of the Brexit-related challenges facing firms. You can read more about Brexit on our website and on our Brexit microsite on our Knowledge Portal.