[Estimated time to read: 4.5 minutes]
Financial licensing and regulation in Dubai and the UAE is confusing.
But it's really important and far too many people skim over the detail.
There is no surer way to LOSE YOUR MONEY than to invest without doing some quick and basic research on the salesperson trying to get you to follow their advice.
Furthermore what regulation there is doesn’t generally work like anything you are used to back home.
It doesn’t help that along with places such as Kuala Lumpur and Marbella, it has one of the highest densities of 'financial boiler rooms' (unlicensed financial advisers) in the world…
Perhaps the best advice is 'buyer beware.'
Never take what an individual says at his own word.
Do your due diligence and always read/check the paperwork and detail…
Financial Regulators in the UAE
The UAE Insurance Authority (IA)
Most large retail brokers are licensed by the UAE Insurance Authority.
Brokers must meet some basic requirements to get this licence.
But it's not the Gold Standard by any means.
They should be able to give you a copy of their trade licence, commercial registration and professional indemnity cover.
It might be a little embarrassing, but you should always ask to see these documents to ensure that the person talking to you is properly authorised to sell insurance (if you want to buy insurance): a reputable adviser will be happy to share his or her qualifications.
These firms typically receive commission from the sale of insurance products. The providers of these insurance products are firms like Generali Worldwide, Zurich International, Friends Provident International, RL 360 and Hansard International.
Generally, the providers create charging structures that are hard for investors to untangle.
One firm is not allowed to use the licence of another firm as this practice (known as piggybacking) is banned.
A list of the firms licensed this way is available here.
Remember – having the licence does not mean the firm will look after you – it simply means they have been set up properly.
The Emirates Security and Commodities Association (SCA)
SCA is responsible for the federal firms who provide advice on the sales and purchase of stocks and shares.
It is reported that it is also going to bring out an authorisation for financial consultancy.
Financial consultancies do not need a substantial amount of capital and have restrictions on the breadth of advice they are able to give.
It is increasingly popular for financial advisers to register with SCA as it is less onerous than the insurance authority.
Many regularly stray from their permitted activities as they are confident that the regulator will not catch them.
A register of SCA licensed firms is available here.
The Central Bank is responsible for the laws and regulations governing banks and other financial institutions in the UAE.
There is some ambiguity on which of SCA and the Central Bank has the ultimate authority.
Dubai Financial Services Authority (DFSA)
The DFSA is a western style regulator which operates within a free zone called the Dubai International Financial Centre.
Firms in DIFC tend to act like firms back home and meet strict requirements across all aspects of the business.
There is an excellent regulator and common law framework which adds protection to clients in the DIFC.
See a list of firms regulated by the DFSA (Including AES Financial Services Ltd.) here.
If my mother was an expat in Dubai – I would tell her to only ever deal with a DFSA regulated firm…
Many overseas firms travel into the UAE and transact business.
They may do so under the protection of licences from other countries, or often without any licence at all.
The laws in the country where these companies come from determine what if any rights and protections are in place for investors.
I recently saw the damage caused by a firm tripping in from the Czech Republic, and often see offshore shell companies operating in a shady way.
As a rule of thumb, it rarely makes sense to work with a firm that is not regulated in the country where you are receiving the advice.
There are available, in the UAE, excellent protections for clients through the DFSA. Working with a UK Chartered firm should also offer a level of confidence in the services you are provided given the stringent requirements imposed by the awarding body, the Chartered Insurance Institute.
What to do when things go wrong with a financial adviser in the UAE
Prevention is definitely better than the cure: by the time things have gone wrong it is often too late.
There just isn't the recourse to complaints that many expats are used to if you deal with the wrong type of firm.
As you can see, there are a number of regulators and it is often not clear to anyone which of them is responsible for supervision in this marketplace.
That's why it's so important to do a little bit of basic research up front.
Remember – buyer beware!
Doing things right means above all other things – choosing the right firm first.
The right firm should keep you clear of problems.
Next you need the right plan, the right platform, the right asset allocation and the right underlying investments. These are all important, and you should be suspicious until your adviser has repeatedly proven that she is acting with your interests at heart.
This sounds complicated but carefully selecting the type of firm you deal with will have a profound impact on the results you get.
Independent bestselling author, Andrew Hallam (The Millionaire Teacher), has produced an excellent checklist against which your adviser should measure up.
Take a look and don't be afraid to ask difficult questions about them and their firm.
Editor's note: This blog is updated as of 9th August 2016