Abu Dhabi's ADGM publishes proposed regulatory framework for alternative finance providers

Source: ADGM

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) today published a discussion paper setting out its proposed regulatory framework for operators of financing platforms for non-public companies (Private Financing Platforms or PFPs).

Private enterprises, including start-ups and small and medium-sized enterprises (SMEs), are key engines of economic growth and diversification in the region, but they are an underserved segment in terms of financing needs. The FSRA therefore considers it important to develop alternative financing solutions for them to bridge the commercial funding gap[1] and ease cashflow issues. In this regard, PFPs can play an important role in improving access to financial services and developing financing ecosystems for start-ups and SMEs seeking to launch and grow their businesses, as well as spurring innovation and enhancing competitiveness in these sectors. PFPs can serve a wide, private market landscape from very early stage to pre-IPO stage companies.

FSRA is proposing a calibrated, risk-appropriate regulatory framework (the PFP Framework) for PFPs that would facilitate access by start-ups and SMEs to new, alternative sources of funding primarily from Professional Clients, while applying the necessary regulatory safeguards to ensure that they operate in a safe and sound manner for those clients.

Key features of the proposed PFP Framework

The creation of a new Regulated Activity (Operating a Private Financing Platform) which permits both investment-based and loan-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 risk-appropriate retail protections depending on the nature and scale of the PFP operator’s business.
The requirement for PFP operators, whilst retaining sufficient flexibility to accommodate innovative business models, to have appropriate systems and controls including, but not limited to: due diligence arrangements for those accessing the PFP; client asset protections; and disclosure obligations.

The proposed PFP Framework serves to promote FSRA’s continued objective in developing a stable and sustainable financial services sector in Abu Dhabi and the UAE, while fostering innovation within risk-proportionate regulatory safeguards.

ADGM invites the public and industry participants to submit their comments by 10 April 2018

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