In an effort to transform and position the UAE as a global business hub, 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.
This decision, formulated by the SCA board of directors, aims to enhance the effectiveness of the securitization and sukuk regulations. Sukuk is an Islamic equivalent of a financial certificate or “sharia compliant” bond that represents a portion of ownership in a portfolio of eligible existing or future assets. This initiative aligns with the UAE’s intention to bolster its investment funds industry and stabilize its domestic financial market.
His Excellency Mohamed Ali Al Shorafa, the SCA’s Chairman, believes 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.”
The decision consists of 14 articles that include aspects such as 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. According to the decision, an SPV will act 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. Article 2 of the decision details the stakeholders influenced by these provisions, such as SPV auditors, advisors, service providers, and any other associated or related entity or person.
The decision also provides detailed instructions regarding the establishment of an SPV, which would require authorization from the SCA after relevant documentation was submitted for review. This process is expected to take five business days, within which an SPV application is thoroughly assessed.
Her Excellency Dr. Maryam Buti Al Suwaidi, the SCA’s CEO, is certain that “the decision is 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.”
