Proposed framework for operators of PFPs
ADGM issues public consult on regulatory framework for private financing platforms, addressing the financing needs and support for startups and small-and-medium-enterprises in MENA.
Abu Dhabi Global Market (ADGM), the International Financial Centre in Abu Dhabi, has published a consultation paper setting out its proposed regulatory framework for operators of Private Financing Platforms (PFPs) in ADGM. This follows positive feedback received from the industry in response to the March discussion paper issued by the Financial Services Regulatory Authority (FSRA) on the scope and form of a regulatory framework for PFPs, which has informed the development and refinement of the proposals set out in this consultation paper. This is part of FSRA’s ongoing initiatives to provide an inclusive regulatory platform that bolster the growth and development of start-ups and small- and medium-sized enterprises (SMEs) in Abu Dhabi and MENA region.
PFPs are online platforms that enable private enterprises to seek financing from private and institutional investors to launch and grow their businesses. PFPs that facilitate such business-to-business lending, equity crowdfunding, invoice financing and private placements can play an important role in improving access to alternative financing for private enterprises, start-ups and SMEs, which are key engines of economic growth and diversification in the UAE and wider region.
The FSRA is proposing a tailored, risk-proportionate regulatory framework that effectively addresses the risks posed by transactions facilitated through a PFP. The proposed features of the regulatory framework include the following:
- Creation of a new Regulated Activity (Operating a Private Financing Platform) which permits both loan-based and investment-based PFP transactions;
- Loans or investments may be held directly by lenders or investors or indirectly through a special purpose vehicle (SPV). The PFP Framework will be supported by the range of SPVs available in ADGM which will offer flexibility in various financing, securitisation and asset transfer options;
- Participation in PFP transactions is targeted at Professional Clients given the higher risks associated with these transactions. The FSRA may allow PFP operators to serve Retail Clients, on an exceptional basis, subject to the PFP operator putting in place appropriate safeguards commensurate with the nature and scale of the PFP operator’s business.
- Requirements for PFP operators, whilst retaining sufficient flexibility to accommodate innovative business models, to have appropriate systems and controls in the areas of due diligence of those enterprises listed on the PFP, disclosure, safeguarding of client assets, anti-money laundering and counter-terrorist financing (AML/CFT), amongst others.
ADGM invites the public and industry participants to submit their comments of the proposed framework and draft regulations and rules by 16 August 2018 to email@example.com. For more details of the consultation, please click on this link.