As a financial professional or someone looking to start a business in Dubai International Financial Centre (DIFC), understanding the different categories of licenses issued by the Dubai Financial Services Authority (DFSA) is important. The DFSA is the independent regulator of financial services performed in or from the DIFC license categories, and it plays an important role in maintaining the goodness and strength of the financial system.
When it comes to setting up a business in DIFC license categories, understanding the different licensing categories is important. Each category is designed to accommodate specific types of businesses and activities. Let’s take a closer look at each category to gain a better understanding of which one might be suitable for your business.
DIFC License Categories UAE
The category of License required for an applicant is determined by the type of business they wish to engage in. For example, if a firm is involved in low-risk activities such as advising or arranging, they will need a DIFC Category 4 License. On the other hand, a discretionary portfolio manager will require a DIFC Category 3C License. A market maker or credit provider will need a DIFC Category 2 License, while an STP broker dealing on a matched principle basis will require a DIFC Category 3A License. Full-fledged banks that accept deposits fall under the DIFC Category 1 License.
It is important to note that there is a common fantasy that firms apply for either a DIFC Category 3C or a DIFC Category 4 license. However, the specific activities the firm wishes to engage in determine the category of license they require. For example, a company involved in asset management, advisory, and arranging activities will fall under Category 3C due to the highest activity of managing assets, even though advisory activities fall under Category 4.
It is important to understand that getting a Category 3C or Category 4 license does not automatically grant permission for the firm to carry out all other activities within those categories. The firm must apply for each specific activity and provide detailed information for each intended activity on DIFC license categories.
What are the Different DIFC Licensing Categories?
Category 1 activities in the banking sector require a base capital of US$ 10 million. The capital requirement is determined by the higher of the base capital or the risk-based capital requirement, along with applicable capital buffers.
These activities include accepting deposits and managing an unrestricted profit-sharing account.
To meet the necessary staffing requirements, Category 1 banks in the DIFC license categories must consider the scale, scope, and nature of their proposed product portfolio. At a minimum, the DFSA expects the following appointments:
1. Board of Directors: A well-organized and diverse board, with a majority of independent directors and robust governance policies.
2. Senior Executive Officer (SEO): A senior banking professional with 10-15 years of experience, who is ordinarily resident in the UAE.
3. Finance Officer (FO): A senior and suitably-qualified finance professional.
4. Chief Risk Officer: A senior risk professional, who can be from the parent entity.
5. Compliance Officer (CO): A senior compliance professional with over 10 years of experience, who is ordinarily resident in the UAE.
6. Money-Laundering Reporting Officer: A senior AML professional with over 10 years of experience, who is ordinarily resident in the UAE.
7. Internal Auditor: A senior and suitably qualified internal audit professional.
These appointments are crucial to ensure the effective and compliant operation of Category 1 banks in the DIFC license categories.
Category 2 – Market maker, credit provider
Base Capital – US$ 2 million
Activities – Trading as Principal, Providing Credit
Required appointments:
Category 2 activities are also considered high-risk activities, and therefore, the staffing requirements depend on the scale, scope, and nature of the product portfolio proposed to be offered from the DIFC license categories. At a minimum, the DFSA expects the following appointments:
Board of Directors – A well-structured, diverse Board with Independent Directors and robust governance policies. The Chair must be a non-executive Director.
Senior Executive Officer (SEO) – A highly experienced banking professional with a minimum of 10-15 years of expertise, residing in the UAE.
Finance Officer (FO) – A senior and qualified finance professional. In the case of a group, the FO can be from the parent company and is not required to be a resident of the UAE.
Chief Risk Officer – A senior risk professional, who can be from the parent entity in the case of a group.
Money-Laundering Reporting Officer – A senior AML professional with a minimum of 10 years of experience, residing in the UAE.
Internal Auditor – A senior and suitably qualified internal audit professional.
Category 3A – Brokerage
Base Capital – US$ 500,000
Activities – Engaging in Investments as Matched Principal, Engaging in Investments as Agent
Required appointments
Brokerage is considered a high-risk activity by the DFSA, and therefore, the staffing requirements are dependent on the size, scope, and nature of the product portfolio that will be offered from the DIFC license categories. At a minimum, the DFSA expects the following appointments:
1. Board of Directors – A well-structured and diverse Board consisting of Independent Directors and strong governance policies.
2. Finance Officer (FO) – A senior and qualified finance professional. If the brokerage is part of a larger group, the FO can be from the parent company and is not required to be a resident of the UAE.
4. Chief Risk Officer – A senior risk professional who can be sourced from the parent entity if the brokerage is part of a group.
3. Compliance Officer (CO) – A senior compliance professional with a minimum of 10 years of experience, who is a resident of the UAE.
4. Money-Laundering Reporting Officer – A senior AML professional with a minimum of 10 years of experience, who is a resident of the UAE. This role can be combined with the Compliance Officer position, allowing one individual to fulfill both responsibilities.
5. Internal Auditor – A senior and qualified internal audit professional. This role can be outsourced to a professional firm.
Category 3B – Director and Employee Cash Buying Schemes
Base Capital – US$ 4 million
Activities: Providing custody (just for a fund), Acting as Trustees for Money, Managing the Employee Cash Purchasing Plan, and Acting as Administrator of an Employee Cash Purchasing Plan.
Required appointments
Similar to other firms in this category, the DFSA expects the firm to have an appropriate number of staff members based on the size, scope, and nature of the product portfolio that will be offered from the DIFC. At a minimum, the DFSA requires the following appointments:
1. Board of Directors – A well-structured and diverse Board with Independent Directors and strong governance policies. The Chair must be a non-executive Director.
2. Senior Executive Officer (SEO) – A highly experienced banking professional with a minimum of 10-15 years of experience, residing in the UAE.
3. Finance Officer (FO) – A senior finance professional with suitable qualifications. If the firm is part of a group, the FO can be from the parent company and does not need to be based in the UAE.
4. Chief Risk Officer – A senior risk professional, who can be from the parent entity if the firm is part of a group.
5. Compliance Officer (CO) – A senior safety expert with at least ten years of experience based in the UAE.
6. Money-Laundering Monitoring Officer – A senior AML expert with at least ten years of experience who lives in the UAE.
7. Internal Auditor – A senior and appropriately qualified internal audit professional. This role can be outsourced to a professional firm.
Category 3C firms, which include Asset Managers, Fund Managers, and Issuers of Stored Value (Money Services), are required to have a base capital of US$500,000.
However, there are different base capital requirements for specific types of managers. Exempt Fund and Qualified Investment Fund Managers are required to have a base capital of US$70,000, while VC Fund Managers have a base capital requirement of US$0.
The activities that Category 3C firms are allowed to engage in include managing assets, managing a collective investment fund, providing custody services, managing a Private Strategic Investment Account (PSIAr), providing trust services as a trustee of an express trust, providing custody services (other than for a Fund), and providing money services (issuing stored value).
In terms of required appointments, the DFSA expects Category 3C firms to have adequate staffing based on the scale, scope, and nature of the product portfolio they plan to offer from the DIFC license categories. At a minimum, the following appointments are expected:
1. Board of Directors: A well-organized and diverse Board with Independent Directors and robust governance policies. The Chair of the Board must be a non-executive Director.
2. Senior Executive Officer (SEO): A senior banking professional with 10-15 years of experience, who is ordinarily resident in the UAE.
3. Finance Officer (FO): A senior and suitably-qualified finance professional. If the firm is part of a group, the FO can be from the parent company and does not need to be resident in the UAE. This role can also be outsourced.
4. Risk Officer: A senior risk professional, who can be from the parent entity in the case of a group.
5. Compliance Officer (CO): A senior compliance professional with over 10 years of experience, who is ordinarily resident in the UAE.
6. Money-Laundering Reporting Officer (MLRO): A senior AML professional with over 10 years of experience, who is ordinarily resident in the UAE. In certain circumstances, the CO and MLRO roles can be outsourced to external parties.
7. Internal Auditor: A senior and suitably qualified internal audit professional. This role is usually outsourced to a professional firm.
Category 3D – Money Service Businesses
Base Capital – US$ 200,000
Activities: Providing Currency Services (other than giving Saved Value)
Required appointments
Since this is a new category of licensing, the DFSA expects that the firm be adequately staffed depending on the scale, scope and nature of the product portfolio that is proposed to be offered from the DIFC license categories. At a minimum, the DFSA would like to see the following appointments:
Board of Directors – a well-organized, diverse Board with Non-executive Directors and robust governance policies. The Chair would have to be a non-executive Director.
Senior Executive Officer (SEO) – Senior banking professional with over 10-15 years of experience, ordinarily resident in the UAE.
Finance Officer (FO) – Senior and suitably-qualified finance professional. In case of a group, the FO can be from the parent company and does not have to be resident in the UAE. This role can also be outsourced.
Risk Officer – Senior risk professional, can be from the parent entity in case of a group.
Money-Laundering Reporting Officer – Senior AML professional with over 10 years of experience, ordinarily resident in the UAE. This function can be combined with Compliance and one individual can carry out both responsibilities.
The CO and MLRO roles can also be outsourced in certain circumstances.
Internal Auditor – Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.
Category 4 – Non-discretionary advice and arrangement of activities.
Base Capital – US$ 10,000
Base Funding for Running a Crowdfunding Network or Money Transfer Services: US$ 140,000
Activities include arranging investment transactions, arranging credit and advising on credit, advising on financial products, arranging custody, insurance intermediation, insurance management, operating an ATS, providing fund administration, and trust services, operating a crowdfunding platform, and setting up or suggesting cash services.
The DFSA assumes the company to be properly staffed depending on the size, scope, and nature of the DIFC license categories proposed product offering. At the least, the DFSA would want to see the following appointments:
Board of Directors: an effective group with solid governance policies.
The Chair would have to be a non-executive Director.
Finance Officer (FO) – Senior and suitably qualified finance professional. In case of a group, the FO can be from the parent company and does not have to be resident in the UAE. This role can also be outsourced.
Risk Officer – This role is typically outsourced and not required.
Compliance Officer (CO) – A senior compliance specialist with more than ten years of experience who typically lives in the UAE.
Money-Laundering Reporting Officer – A senior AML professional with over ten years of experience who typically resides in the UAE. This position can be coupled with Conformity, and one person can handle both of the duties.
The CO and MLRO roles can also be outsourced.
Internal Auditor – Senior and suitably qualified internal audit professional. Usually outsourced to a professional firm.
Category 5 pertains to Islamic Business with a base capital of US$ 10 million. The main activities involve the operation of an Islamic Business.
How to Get a DFSA License?
Getting a DFSA license is a strict process that requires careful planning, preparation, and engagement with the DFSA. The exact requirements and procedures for getting a license vary depending on the license category and the nature of the business. However, the general steps involved in obtaining a DFSA license include:
1. Preparation and Feasibility Study: Conduct a thorough analysis of your business model, financial projections, risk management framework, and operational capabilities to ensure they meet the requirements of the desired license category.
2. Application Submission: Prepare and submit a comprehensive application to the DFSA License, including all the necessary documents, such as business plans, financial statements, fit and proper declarations, and compliance manuals.
3. Engagement with the DFSA: Engage in regular discussions and meetings with the DFSA License to address any queries, provide additional information, and demonstrate your commitment to meeting the regulatory standards.
4. Assessment and Review: The DFSA License will review all the submitted documents, conduct background checks on key individuals, assess the suitability of the business model, and evaluate the compliance framework in DIFC license categories.
5. Conditional Approval and Licensing: If the DFSA is satisfied with the application, they will issue a conditional approval, specifying any additional requirements or conditions that must be met. Once these conditions are fulfilled, the DFSA License will grant the license, allowing you to commence operations.
Connect with Neeja Corporate Services
Are you looking to start your DIFC company in Dubai but feeling overcome by the registration process? Don’t worry, you’re not alone. Setting up a business in a foreign country can be challenging, but with the right guidance and support for DIFC license categories, it doesn’t have to be a stressful experience. Neeja’s business setup services offers complete support and serve as a one-stop shop for company setup in Dubai. We provide a wide range of value-added services, such as license applications and VAT registration. Over the years, we have successfully advised many new entrepreneurs to make their business dreams a reality.
To book a free consultation, call on +971 43243031. You can also send a WhatsApp message at +971 50 465 2843. To connect over email, send us your query at [email protected].
