In­vest­ment rules to be sub­ject to in­ter­pre­ta­tion

The Pak Banker - - Front Page - K. Raveen­dran

DRAFT­ING of law is both an art and sci­ence. Legalese be­ing what it is, with all its reper­toire of terms, cause and ef­fects, in­clud­ing but not lim­ited to the afore­said, there would hardly be a sit­u­a­tion or con­di­tion that it can­not tie in within its am­bit. The more clumsy the law reads, there would be that much less con­fu­sion in its im­pli­ca­tions. A well-drafted law is one that leaves very lit­tle scope for in­ter­pre­ta­tion.

The new in­vest­ment fund reg­u­la­tions (IFR) is­sued by the UAE Se­cu­ri­ties and Com­modi­ties Author­ity (SCA) are so sim­ple and straight­for­ward that a lot of things al­ready de­pend on in­ter­pre­ta­tions. In fact, there is so much of am­bi­gu­ity that se­nior mem­bers of the draft­ing team have be­gun hold­ing work­shops on the pos­si­ble in­ter­pre­ta­tions of what the rules state.

The IFRs are pri­mar­ily tar­geted at firms and their rep­re­sen­ta­tives ap­proach­ing clients in the UAE for in­vest­ment in their prod­ucts and se­cu­ri­ties. The need to rein in brief­case in­vest­ment man­agers and bucket op­er­a­tors who fleece un­sus­pect­ing re­tail in­vestors and in­sti­tu­tions with their fancy of­fers has been felt for long and the new reg­u­la­tions are meant to in­tro­duce accountability on the part of th­ese fly-in and fly-out ex­perts.

The new rules stip­u­late that the pro­moter of a fund or any other in­vest­ment prod­uct ap­proach­ing prospec­tive clients in the UAE has to be reg­is­tered ei­ther by the cen­tral bank or the SCA. Un­reg­is­tered for­eign com­pa­nies or their rep­re­sen­ta­tives can deal only with in­sti­tu­tional in­vestors who can af­ford in­vest­ments of at least Dh10 mil­lion. The ra­tio­nale be­hind the de­ci­sion is that in­vestors with that size of bud­get would have the where­withal to un­der­stand if an of­fer is a safe in­vest­ment or not.

In its earnest­ness to pro­tect the small in­vestors, the SCA has in­tro­duced sweep­ing reg­u­la­tions that al­low only li­censed firms or their rep­re­sen­ta­tives to ap­proach in­di­vid­ual in­vestors. But what if an in­di­vid­ual wants to in­vest in a for­eign in­vest­ment prod­uct? What pow­ers does the SCA in­voke to out­law an in­di­vid­ual's right to in­vest in a prod­uct that he or she might be con­vinced about?

Per­haps it is this dilemma that prompted SCA to leave re­verse so­lic­i­ta­tion, which in ef­fect means an in­di­vid­ual in­vestor's free­dom to ap­proach an agent, li­censed or oth- er­wise, rather than the agent ap­proach­ing the in­di­vid­ual, out of the purview of the SCA rule. So are cases of on­go­ing re­la­tion­ships, which may have been forged in­side or out­side the coun­try or be­fore the new rules came into be­ing.

Ac­cord­ing to Clif­ford Chance rep­re­sen­ta­tives who at­tended the SCA brief­ing, while the Author­ity has not men­tioned any spe­cific doc­u­men­ta­tion or record-keep­ing re­quire­ments in this re­gard, they feel it would be pru­dent for firms re­ly­ing on the re­verse so­lic­i­ta­tion ex­emp­tion to main­tain records ev­i­denc­ing that such a re­verse so­lic­i­ta­tion has taken place. A writ­ten re­quest from the in­vestor, they say, would be ideal, but a con­tem­po­ra­ne­ous file note or sim­i­lar doc­u­ment pre­pared by the firm fol­low­ing the re­verse en­quiry would also be help­ful.

But this, in ef­fect, means set­ting the cat among the pi­geons. In this new age of com­mu­ni­ca­tion, with its mul­ti­tudes of chan­nels, an agent can al­ways be ex­pected to put the onus on the client and be ex­cused from the re­spon­si­bil­ity, cit­ing prior un­der­stand­ing with the client. In­ser­tion of a ref­er­ence, such as 'fur­ther to' in the first for­mal com­mu­ni­ca­tion will do the trick for them.

The rules as such do not in­clude non-fund struc­tured prod- ucts, in­surance prod­ucts, pri­vate in­vest­ment port­fo­lios man­aged by UAE banks and in­vest­ment com­pa­nies and em­ployee ben­e­fits schemes. That by it­self leaves out a vast area, in­clud­ing the mine­fields of in­vest­ment-linked in­surance prod­ucts, which have maimed thou­sands of small in­vestors. There are also prob­lem­atic ar­eas, in­clud­ing ju­ris­dic­tional is­sues about su­per­vi­sion of the in­vest­ment prod­uct by an author­ity equiv­a­lent to the SCA in its home coun­try.

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