Financial Services

UAE offers innumerable opportunities for foreign companies to trade in forex, CFD and binary options. Being one of the pertinent financial centers in the Middle East, Dubai and the other Emirates of UAE serve as a base for many forex traders or brokers and other online trading activities.

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Securities Commodities Authority (SCA) of UAE is the regulatory authority for governing all non-banking financial activities including but not limited to forex trading,Is Forex Trading Legal In UAE? Articles CFD and other online activities. SCA’s primary objective is to enhance the capital market and stimulate the economic growth of the UAE. They are attracting foreign investments by offering a steady channel and environment to invest in forex. Besides, Central Bank of UAE also regulates all forex brokers, whereas SCA issues the licenses.

In parallel with SCA, UAE also has two financial free zones namely Dubai International Financial Centre (DIFC) in the Emirate of Dubai and Abu Dhabi Global Market (ADGM) in Abu Dhabi offering activities of Forex Trading, CFD and other online non-banking financial trading. Dubai Financial Services Authority (DFSA) in DIFC is an authority explicitly established to regulate forex brokers or companies performing non-banking financial activities incorporated in DIFC.

It is undoubtedly legal to trade in forex through local brokers regulated by SCA, Central Bank or other regulatory authorities. Pertinently, any natural or legal person willing to offer such non-banking financial services within UAE must establish an entity in the country either in the mainland or in any financial free zone as referred above, in accordance with the laws and regulations of the country. UAE strictly prohibits any entity dealing in forex or another online trading without having a proper license in UAE, obtained through appropriate channels. This is in accordance with Article 6 of the Law number 13 of 2011 regulating Economic Activities in the Emirate of Dubai and Article 328 of the Federal Law Number 2 of 2015 concerning the Commercial Companies Law which confirms that any foreign company cannot conduct activities within UAE without obtaining a proper license. Ergo, the company to provide Forex and CFD services in UAE must primarily obtain a permit from either SCA, DIFC, ADGM or any other regulated free zone offering such activities.

Accessible Alternatives

UAE offers a variety of business registrations for foreign investors willing to register for forex trading. Considering it is a regulated activity in UAE, obtaining a license from any free zone would not suffice your purpose. Below are the most prominent regulated options for establishing a forex trading company in UAE:

Option-A (UAE Mainland Company)

As afore-mentioned, a forex trading license can be obtained by setting up a mainland company in UAE. Department of Economic Development (DED) in Dubai and in other respective Emirates is the authority issuing licenses for all sorts of companies in the mainland. Following are the business activities offered by Dubai mainland for forex trading and other online trading:

Foreign Shares and Bond Brokers;
Foreign Securities Promotion;
Remittance of local and foreign currencies;
Brokerage in commodities listed in foreign markets;
Brokerage in securities listed in foreign markets.
Nevertheless, the license for a mainland company mandates the foreign investor to have a partnership with a UAE national who shall hold a minimum 51% shareholding in the company, however, this shareholding may vary depending upon the type of the company. In furtherance, unlike free zones Company, UAE mainland companies are privileged to access UAE markets and all customers freely.

Along with the license from DED, the investor is required to obtain subsequent approval from SCA, whereas the company and its services will be regulated by the Central Bank of UAE.Option-B (Free-Zone Company)

Mandatory requirement of partnership with UAE local sponsor is what majorly differentiates a mainland company from a free zone entity. Accordingly, two significant free zones offer licenses for forex trading that is DIFC and ADGM as they are categorized a financial free zone by the government of UAE. Nonetheless, the trading companies established in free zones are restricted to approach the local market for trading directly. In addition, these financial free zones have their own rules and regulations and even regulatory authorities governing non-banking financial services providers.

DIFC (Dubai International Financial Centre)
Operated through an independent regulatory authority and having its own legal system is what differentiate DIFC with other free zones in UAE. Service providers in DIFC will be governed by the DFSA (Dubai Financial Services Authority). DIFC offers a wide range of activities to foreign investors with 100% ownership and 0% taxation allures foreign investors to establish their presence in DIFC.

ADGM (Abu Dhabi Global Market)
In similar lines with DIFC, ADGM is the financial free zone in Abu Dhabi having almost similar characteristics and provisions as compared to DIFC. ADGM FSRA (Financial Services Regulatory Authority) regulates all non-banking regulated activities for online trading.

Option-C (Representative Offices)

Lastly the company can opt for registering a representative office in any of the free zone available, wherein the most common and affordable for such activity is DMCC (Dubai Multi-Commodity Centre). This option is best suited for those who would require presence in Dubai without explicitly applying for Forex Trading License. It is further pertinent to note that the holding company shall be undertaking similar activity in other country in order to obtain license for representative office.

Majorly, DMCC offers two types of activities in forex trading as follows:

Trading in Forex, OTC and Exchange Traded Derivatives– explicitly involving in activities based on trading in own money in Forex or OTC with counterparties regulated by authorities approved by DMCC.
Trading in the proprietary account on regulated exchanges: involving companies dealing with trading in their own money in Forex or OTC on account of regulated exchanges.

The renowned legal minds of 7th Circuit judges Frank Easterbrook and Richard Posner have clashed again, this time over the validity and applicability of the Gartenberg approach to claims of excessive mutual fund management fees. Judge Easterbrook, currently chief judge of the 7th Circuit, served on the panel that issued a per curiam opinion in Jones v. Harris Associates, 527 F.3d 627 (7th Cir. 2008) in May 19, 2008. In that case, the judicial panel dismissed the Gartenberg standard that has been relied upon by courts, practitioners and fund managers for more than 25 years.

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On August 8,The Dissent in Jones v. Harris Associates – Defending Gartenberg, Requesting Review Articles 2008, Judge Posner, former chief judge of the 7th Circuit, writing on behalf of a group of 7th Circuit judges, issued a highly critical dissent of the Jones opinion and the panel’s subsequent refusal to allow an en banc rehearing. Jones v. Harris Associates, ___ F.3d ___, 2008 WL 3177282 (7th Cir. 2008). In his dissent, Posner explains the need for en banc review of the underlying case, highlighting the circuit split created by Jones,one which may find its way to Supreme Court review.

Gartenberg and its rejection by the Jones panel

For more than 25 years prior to the 7th Circuit’s opinion in Jones v. Harris Associates, federal courts had relied upon the standard articulated by the 2nd Circuit in Gartenberg v. Merrill Lynch Asset Management Inc., 694 F.2d 923 (2nd Cir. 1982) to determine whether a fund manager breached its fiduciary duty by charging excessive management/ advisory fees in violation of section 36(b) of the Investment Company Act of 1940.

Gartenberg articulated two similar versions of a test to determine a violation of section 36(b): 1) “whether the fee schedule represents a charge within the range of what would have been negotiated at arm’s-length in the light of all of the surrounding circumstances;” and/or 2) whether the advisor-manager charges “a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.” 694 F.2d at 928.

But the Jones panel rejected Gartenberg – actually, the Jones court rejected the premise that the courts, rather than the market, should assess the reasonableness of advisor fees except in extraordinary circumstances. The Jones panel stated: “A fiduciary differs from rate regulation. A fiduciary must make full disclosure and play no tricks, but is not subject to a cap on compensation. The trustees (and in the end investors, who vote with their feet and dollars), rather than a judge or jury, determine how much advisory services are worth.” Jones v. Harris Associates, 527 F.3d 627, 632 (7th Cir. 2008). Added the court: “Judicial price-setting does not accompany fiduciary duties. Section 36(b) does not call for a departure from this norm.” Id. at 633.

Judge Posner’s dissent to Jones and his defense of Gartenberg

On August 8, 2008 – nearly three months after publication of the Jones panel’s opinion — Judge Posner, joined by Circuit Judges Rovner, Wood, Williams and Tinder, published a highly critical dissent in Jones; none of the dissenting judges had served on the original Jones panel. Following publication of the Jones opinion, a “judge in active service called for a vote on the suggestion for rehearing en banc. A majority did not favor rehearing en banc and the petition therefore is denied.” (2008 WL 3177282, p*1). The Posner-authored dissent responded to this denial of a rehearing en banc.

Judge Posner began by citing the overwhelming, long-standing support for Gartenberg by courts and practitioners across the country. The Jones panel had cited two cases for the proposition that the court had previously questioned the Gartenberg approach – Posner stated that neither of those cited cases stood for that proposition at all. Indeed, noted Posner, “there is a slew of positive citations” in support of Gartenberg, and he proceeded to list merely some of the slew. Id. Moreover, Posner noted that Gartenberg has not been so hard on fund advisors that the standard should be changed; he cited legal treatises to show that post-Gartenberg cases have nearly all ended in judgments for the fund manager defendants. Id.

But the heart of Posner’s dissent focused on the economic climate in the financial services market, and among fund managers in particular. Id. at *2 – 3. Rampant abuse in the financial services industry in general combined with inherent conflicts of interest and significant, essentially incestuous, favoritism among fund directors and advisory firms create a dangerous anti-consumer brew, according to Posner. Id. at *3. Posner referred to the panel opinion’s rationale dismissing these concerns as “pure speculation.” Id. at *3.

Harris Associates, notes Posner, is a prime example of this environment of intertwined relationships: Harris founded the Oakmark funds in question; the Oakmark Board of Trustees reselects Harris as the fund advisor every year, and Harris manages the entire Oakmark portfolio. Id. When the directors and the managers are closely connected like Harris and Oakmark, the boards are less likely to monitor and question the fund advisor than if the board was more independent. The result is a situation where consumers have little choice or control – there is no “arm’s length” bargaining power in play. Id.

Posner noted that if the entire industry took advantage of the wide discretion afforded it by Jones, and all fund advisors charged similar exorbitant fees, consumers would have no alternatives even if they did seek to “vote with their feet.” Id. This lack of consumer choice that may result from Jones directly contradicts the “let the market decide” premise of the Jones holding – if the entire market is uniformly too high, consumers have no reasonable alternative decision to make. Id.

Finally, Posner notes that the Jones panel created a split among circuits, with the 7th Circuit’s Jones opinion now contradicting the 2nd Circuit’s Gartenberg holding. Id. at *4. When a panel’s decision is going to create such a split, claims Posner, court procedure is to circulate the decision to the full court in advance of publication, which the Jones panel failed to do. Id. Posner concluded by stating: “[T]he creation of a circuit split, the importance of the issue to the mutual fund industry, and the one-sided character of the panel’s analysis warrant our hearing the case en banc.” Id.

An issue ripe for Supreme Court Review

Posner’s dissent indicates a split not only among circuits, but among the 7th Circuit judges themselves. The debate comes down to the old question of how much protection government – and the judiciary in particular — should provide consumers who may be vulnerable to market controllers. Posner argues that the Jones opinion fails to provide adequate consumer protection; the panel believes the consumers in these circumstances can take care of themselves and the judiciary should step out of the way.

Future federal courts no longer have the comfort of relying on the tried-and-true Gartenberg standard; they will have to make a choice of

Today we face rapid changes in financial services. Several key forces lie behind this transformation, including technological and financial innovation, consolidation, globalization, and customer demand. Each has important implications for the future. I’d like to share with you some thoughts about just one of these changes — technological innovation — because I think it will have such far-reaching effects.

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In many ways,What to Expect From Financial Innovation in the Future Articles the current technological revolution is best characterized by the explosion in information technology. In his book, The Road Ahead, Bill Gates of Microsoft writes: “What characterizes this period in history is the completely new ways in which information can be changed and manipulated, and the increasing speeds at which we can handle it.”

Let me go back to my opening point about gigabytes. You’ll recall those are the eight billion bits of digital information I told you not to worry about. You probably don’t think about gigabytes every day, but they’re hard at work for you all the time. Computing power is a prime example of how quickly things change in this world.

Every 18 months, the cost of computing power falls by half. Experts call this phenomenon Moore’s law. Now let’s put this in perspective. If we wait about the same length of time it’ll take Congress to enact last year’s budget, you and I can buy twice as much computing power for the same price.

Moore’s law has held true for several decades. In 1983, IBM computer owners could buy 10 megabytes of additional computing power for $3,000 — or $300 per megabyte. Now let’s fast forward to the present. Today you can buy a hard drive with 1.2 gigabytes — 9.6 billion bits of information — for only about $250. That’s 21 cents per megabyte. From $300 down to 21 cents — that’s value.

But it means a great deal more than just value. It means opportunity. It means that as costs decrease and computing power and capacity increase, people will find new uses for information technology. They’ll find faster, cheaper, and better ways to do what we do now. And they’ll find ways to do things we hadn’t even thought of in the past. The more people learn about and make use of these developments, the more they’ll become comfortable with them and even demand more of them.

Consumers today are more willing than ever before to use alternatives to brick-and-mortar branches. They expect access to ATMs. Once they’ve tried direct deposit, they generally like it. And they’re coming to accept debit cards. And that’s not to speak of electronic benefits transfers and electronic money, which are laying the foundation for a fundamentally new paper-less payment system. I note that 31 percent of the homes in American owned a personal computer as of 1994, up by four million households over 1993.

All of this means that the way in which retail financial services are provided will continue to change. Financial institutions will probably form alliances with providers of information technology to distribute products in new ways to consumers. Any consumer using the Internet can access the Worldwide Web and use financial planning shareware and spreadsheets to make their own calculations based on live data and quotes from a financial services firm. This will be assisted by the fact that, according to some estimates, by the year 2005, 80 percent of U.S. homes and offices will have some form of connection to the Internet. Others predict that by 1999 almost 50 percent of U.S. households will be using home-based financial services.

Technology has slashed the costs of gathering information and transacting business, and could provide substantial economies of scale. That is, they could potentially give a competitive edge to large financial institutions able to make substantial up-front investments in technology. And they could help drive continued consolidation among financial institutions.

The technological revolution will have profound implications for you as credit unions, as providers of financial services. Harnessing the new technology will take considerable effort and may have high up-front costs. Much may depend on how readily smaller institutions can purchase the relevant expertise from outside vendors, rather than having to develop it themselves. Perhaps CUNA, as a leader in the credit union movement, can keep a watchful eye to make sure such expertise is available.

As our financial system becomes more concentrated and financial products become more standardized, credit unions — as grassroots, member-oriented organizations — can become even more important in assuring that people within their common bond get good, personal service.