Two years on from the establishment of the Abu Dhabi Global Market ("ADGM"), Abu Dhabi has confirmed plans to formally launch its eagerly awaited financial free zone later this year. The ADGM will be the first free zone in Abu Dhabi to construct its own legal and regulatory framework. Its initial focus will be on private banking, wealth management and asset management as Abu Dhabi looks to expand its financial services capability and diversify its oil-based economy by developing as an international financial centre.
Abu Dhabi's strong transport links and central location already attract businesses worldwide. However, companies operating out of the ADGM would be able to trade in commodities, currencies, securities and derivatives; to offer brokerage, settlement, clearing and depositary services; and to provide Islamic finance and other banking products and financial services. In the wake of the global financial crisis, many are optimistic at the prospects of foreign investment into the ADGM.
The ADGM will be equipped with its own financial services regulator (the Financial Services Regulations Bureau), companies registrar (the Global Marketplace Registration Bureau), together with a Court of First Instance and Court of Appeal to resolve disputes arising in the ADGM. There is no formal right of appeal to any English court or the Privy Council. The creation of specific judicial and legislative infrastructure promises international standards and best practice in a business-friendly environment. The ADGM authorities will be housed in the prestigious new headquarters in Sowwah Square, Al Maryah Island.
Tax incentives have been devised and high profile leaders recruited to entice firms into the ADGM. Companies and their employees will benefit from a 50-year tax exemption on profits arising out of their activities in the zone and money or asset transfers outside the ADGM. Further incentives include exemption from import duties and the facility for 100% foreign ownership of companies (rather than the current limit of 49%). The ADGM's leadership includes former directors of the Dubai International Financial Centre ("DIFC") and experienced finance executives. Hector Sants, the former head of the UK Financial Services Authority, will advise ADGM's Chairman, Ahmed Al Sayegh, on its ADGM's regulatory strategy and framework.
The interaction between Common Law and the law of the ADGM
A further attraction of the ADGM is its proposal to adopt the common law as the basis of its civil and commercial law framework, together with English law statutes that modify or codify it (such as the Contracts (Rights of Third Parties) Act 1999 and the Partnership Act 1890). The ADGM is currently consulting on draft regulations which combine the common law with selected laws of Abu Dhabi in areas such as the freehold ownership of land.
In contrast to the predominantly civil law governed states in the Middle East, the ADGM has taken the same approach as the DIFC in looking to the English common law for inspiration, subject to modification where required. The proposed regulations offer the best of both worlds, as they incorporate tried and tested English law while discarding some of the outdated or inappropriate provisions. They also ensure that Abu Dhabi and the laws of the UAE continue to play an important role. For example, the companies regulations provide that, in accordance with best practice of several other jurisdictions, shares will not have a par value.
The draft companies regulations are founded upon the UK Companies Act 2006, though without criminal liability for directors. References to public companies have also been removed as it is envisaged that a future exchange will formulate specific listing rules. The regulations allow for the removal of directors and auditors by written resolution of the shareholders and introduce the "restricted scope company", a holding vehicle offering a degree of confidentiality and requiring minimal disclosure and compliance, cutting costs. The companies regulations will only apply to companies who are incorporated in or have elected to move their jurisdiction of incorporation to the ADGM.
The proposed insolvency regulations will form a welcome replacement for the UAE's current insolvency regime, which is thought to be inadequate in certain respects. The draft regulations are based around the UK Insolvency Act 1986 (as modified by the draft UK Insolvency Rules 2015).
The draft regulations governing employment envisage that English common law will apply where appropriate; for example, to the enforceability of restrictive covenants. These regulations contain fairly generous employment rights, though employers will be able to make dismissals without specified reasons or procedures. However, the regulations do prohibit discrimination on specified grounds, similar to the "protected characteristics" regime under the UK and EU equality legislation. A final set of regulations address property interests (save for freehold ownership), providing that registered land will be governed by common law rules.
The regulations in their current form do not provide for financial services regulation, the absence of which may delay the participation of some institutions, particularly those whose main operations are in heavily regulated countries. However, Consultation Paper No. 3 of 2015 indicates that a regulatory regime will likely be established for the financial services industry (being one of "certain economic sectors that are usually regulated in most jurisdictions"). In addition (and in common with the DIFC), the ADGM has no authority to enact any new criminal laws and the Abu Dhabi and Federal criminal laws will continue to apply.
The future of the ADGM
The ADGM will play a significant part in Abu Dhabi's Economic Vision 2030, which "aims to achieve effective economic transformation of the Emirate's economic base and bring about global integration and enduring benefits to all." Abu Dhabi is already looking beyond its oil markets and in addition to securing financial investment, it is hoped that the ADGM will drive continued growth in the real estate, retail and hospitality sectors. Significant plans are developing for residences on Al Maryah Island with a view to accommodating over 75,000 new professionals.
Plans for the ADGM have been carefully constructed, with input from a panel of banks and potential stakeholders, including the International Swaps and Derivatives Association and Man Group. The ADGM provides assurance that its legal and regulatory framework will incorporate the highest standards, in line with best practice of economies worldwide. The current consultation process follows months of expert deliberation over the draft regulations, ensuring that the appropriate laws will apply.
The ADGM follows in the footsteps of the DIFC, established in 2004. Speculation continues as to whether the ADGM will complement or compete with the DIFC. Despite assurances from business leaders that the two financial free zones will be united in confirming the UAE's status as a global financial centre, concerns have been expressed that the wealthier capital of the UAE may take investment away from Dubai. Both the ADGM and the DIFC aim to attract organisations offering similar financial services and it remains to be seen whether such institutions will commit resources to two UAE financial hubs in such close proximity.
Whether or not the ADGM becomes a competitor to the DIFC, its launch will create a fusion between the two zones, which may reduce costs to businesses that wish to operate from both centres. Investors will further be enticed by the incentives on offer, particularly the generous tax exemptions and new restricted scope companies which may be extended to family offices, who manage a large proportion of assets located in the Gulf. Having been gradually built by those most likely to use and critique it, the ADGM certainly has the potential to become a world-class financial free zone.
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