DIFC clarifies certain requirements around the new UBO Regulations and sets informal grace period for compliance by DIFC registered entities

In an outreach session on 25th February 2019, the Dubai International Financial Centre (“DIFC”) Authority clarified some of the requirements around the recently enacted Ultimate Beneficial Ownership Regulations (“UBO Regulations”), which entered into force on 12 November 2018.

Under the UBO Regulations, DIFC registered entities are required to maintain a private register of Ultimate Beneficial Owners (“UBOs”) (the “UBO Register”) and were to notify the particulars of UBOs existing at the time of the enactment of the UBO Regulations to the DIFC Registrar of Companies (the “Registrar”) within 90 days of such enactment. Any subsequent changes to the UBO Register must also be notified to the Registrar.

The original deadline for complying with the initial submission of UBO information requirement has now expired. However, in order to enable DIFC registered entities to meet their reporting obligations under the UBO Regulations, the DIFC Authority has confirmed to the DIFC community that it is operating an informal grace period of 30 days’, extending the effective deadline for compliance to 14th March 2019, to allow entities to update and disclose relevant UBO information to the Registrar. Failure to comply may result in penalties of up to USD 25,000 per non-compliance and would ultimately allow the Registrar to strike the company off the register.

The UBO Regulations

Under the UBO Regulations, DIFC entities are obliged to maintain and keep a complete, accurate and up-to-date UBO Register listing all persons qualifying as UBOs.

With respect to companies registered in the DIFC, whether private or public, a UBO is a natural person who owns or controls (directly or indirectly):

• 25% or more of the share capital of the company or the rights to receive distributions of income or capital of the company (whichever is higher); or
• 25% or more of the voting rights of the company; or
• the right to appoint or remove the majority of the directors.

With respect to partnerships registered in the DIFC, a UBO is a natural person who exercises or has the right to exercise “significant control or influence” over the activities of the partnership. For a partnership with a general partner/limited partner structure, this will usually apply to the general partner only. For limited liability partnerships, this will usually apply to the board members or managing partners.

With respect to Non Profit Incorporated Organisations (“NPIOs”) and foundations registered in the DIFC, a UBO is a natural person who exercises or has the right to exercise “significant control or influence” over the activities of the NPIO or foundation, including its governing body or administrator.

With respect to all types of entities in the DIFC, if no natural person is identified using the criteria noted above, pursuant to Regulation 3.1.4 of the UBO Regulations, any natural person with whose instructions the entity or its governing body/board of directors “are required or accustomed to act” will be considered a UBO for that entity. Accordingly, this is very much case specific and can extend to include, by way of example, a board chairman who has a casting vote, or in some instances, a natural person who is not a board member, shareholder or person carrying out a formal executive function within the entity.

If still no natural person is identified, every board member may be deemed a UBO (including any UBOs of any corporate body board members) pursuant to Regulation 3.1.5 of the UBO Regulations.

It is imperative, therefore, that DIFC entities take practical legal advice to assess whether any persons are inadvertently caught by the UBO Regulations and whether necessary disclosures need to be made, including in light of the entity’s structure, constitutional document and day-to-day management practices. If more than one person meets the qualifying criteria of a UBO, all such persons must be listed in the UBO Register.

Requirement to notify the Registrar

The UBO Regulations require that DIFC registered entities provide particulars of all current UBOs within 90 days of the UBO Regulations coming into force (i.e. [insert original date]). In its outreach session, the DIFC confirmed that they have informally offered a grace period of 30 days (up to 14 March 2019) for compliance before the issue of fines or penalties will begin.

Following the initial provision of information to the Registrar, DIFC registered entities will only be required to provide UBO information upon the occurrence of any of the following:

• registration or incorporation of a new entity (e.g. a subsidiary); or
• upon a change of UBO or relevant UBO particulars.

In accordance with the UBO Regulations, relevant changes must be made to the UBO Register within 30 days of the entity becoming aware of such change. The entity will then have a further 30 days to notify the Registrar of the relevant change. Based on the information provided, the Registrar has discretion to request further information from the entity.

DIFC entities will be asked to confirm whether there have been any changes to its UBOs in its required annual confirmation statement. It is also important to note that in the context of a change in shareholding, under Regulation 3.2.3 of the UBO Regulations, a DIFC entity is prohibited from registering or recognising the relevant share transfer and/or share transfer document unless a statement is given by the transferee of shares to the DIFC entity confirming, amongst other things, whether such transfer will result in a change in any UBO of the DIFC entity.

Even where a full or partial exemption to the UBO Regulations applies (see below), DIFC entities will still be required to provide UBO information to the Registrar (including the applicability of the exemption), except in instances where the entity is regulated by the Dubai Financial Services Authority (the “DFSA”),in which case the Registrar will rely on the information sharing process between the DIFC and the DFSA.

Exemptions

Certain DIFC entities are exempt from the requirement to obtain, maintain and hold adequate, accurate and current UBO information, on the basis that the DIFC considers such entity to be sufficiently regulated by a recognised authority, regulator or stock exchange. Such exemptions apply to:

• entities whose securities are listed on a recognised stock exchange;
• entities regulated by the DFSA or other recognised financial regulator;
• Recognised Companies, Recognised Foundation or Recognised Partnership (within the meaning of DIFC law and informally known as ‘branches’) who are able to satisfy the Registrar that they are subject to equivalent international standards which ensure adequate transparency of ownership information in their home jurisdiction;
• government agencies or wholly owned government entities of 34 specific jurisdictions (at time of writing) plus Saudi Arabia and China; and
• entities established by virtue of a UAE law (whether federal or emirate level) to perform governmental functions.

Government agencies and wholly owned government entities from jurisdictions outside of those specified (including Saudi Arabia and China) may still qualify for an exemption upon application to the Registrar, who will make a determination on a case by case basis.

NPIOs may qualify for an exemption provided they give an undertaking that their primary function is not to raise money for certain purposes, including charitable and religious purposes.

Partial Exemptions

Other DIFC entities may qualify for a “partial exemption” under the UBO Regulations if they are 25% beneficially owned or controlled (directly or indirectly) by persons who meet the criteria for an exemption set out above. In such cases, the registered DIFC entity will be required to include certain information on the relevant shareholder in the UBO Register (including name and address of the relevant shareholder, the category of exemption applicable and the name of the relevant recognised regulator or stock exchange), as well as notification of such information to the Registrar. The DIFC entity will not be required to make further enquiries on its ultimate shareholding beyond this level of ownership.

Recognised Entities

It is important to note that a recognised entity (including a Recognised Company, Foundation or Partnership) will not be considered exempt solely by virtue of it being a recognised entity. A recognised entity will only qualify for an exemption (or partial exemption) provided it meets the criteria for a full (or partial) exemption as noted above.

Trusts

Trusts are not specifically regulated by the UBO Law. However, under the Trusts Law (DIFC Law No. 4 of 2018), all trusts are required to take reasonable steps to identify UBOs of any party to the trust which is a body corporate, and where required by the Registrar, make the relevant information available.

Retention of UBO Information

Pursuant to the UBO Regulations, UBO information provided to the Registrar will be collected and processed solely for the purposes of regulation in relation to money laundering, terrorism financing, unlawful organisations, sanctions compliance or in accordance with any other law applicable in the UAE. Unless required for such purpose, the information may not be retained in the possession of the Registrar and arrangements shall be made for its secure destruction.

Where information is required to be stored, the DIFC have clarified that such information is to be kept in a secure “vault” and, in accordance with the UBO Regulations and DIFC law, the DIFC will be permitted to turn over such information as required by a relevant regulator, law enforcement agency or other governmental authority prescribed by law. DIFC registered entities worried about sensitive information being inadvertently maintained on DIFC electronic systems will be permitted to submit information in hard copy.

The DIFC have commented in its outreach session that this approach on information retention has been taken in order to protect the privacy of DIFC registered entities, instead requiring each DIFC entity to maintain its own UBO information which they are obliged to turn over to the Registrar in a timely manner upon request.

Enforcement Provisions

The Registrar may, by notice to a DIFC entity or any other person, require such person to make available any information or documentation relating to a UBO of the DIFC entity for the purpose of inspection. Failure to comply with such a notice may lead to a fine or penalties for the relevant DIFC entity, and in the case of any other person, a statement made in response to a notice may be used in evidence against him in any relevant civil or criminal proceedings.

Should you require any assistance in identifying UBOs relevant to your DIFC entity and satisfying your obligations under the UBO Regulations, please do not hesitate to get in touch with a member of the team.