The Chairman of the Board of Directors of the Securities and Commodities Authority “Authority” issued Resolution No. (42/R.M) of 2023 on 5 December 2023 approving Appendix No. (5) on investing funds for the purposes of implementing optional alternative system to the end-of-service gratuity system. The funds of saving the end of service gratuity are considered a public (open) local fund licensed by the Authority. Any of the saving funds may apply any of the following investment policies:

• The investment policy of the Capital Protection Fund: It serves as a basic option for all beneficiaries of skilled and unskilled workers, and to be the only option for the category of unskilled workers classified in accordance with the decisions of the Council of Ministers.

• Risk-Based Investment Policies: It is available to beneficiaries of skilled labour or if participation is voluntary. The investment policies of the public local open fund are applied only if the subscription is basic, and one of the investment policies of the public local fund (open or closed) is applied if the subscription is voluntary.

The end-of-service gratuity savings funds are classified into two types: I. Umbrella, II. Protected Cells Funds

The providers of end-of-service gratuity services are required to abide by the following additional obligations: 

1. Investment Policy: To provide investment policy for the Capital Protection Fund as a basic option, provided that there should be at least one investment option compatible with Islamic Sharia.
2. Agreement with Employers: To sign a clear agreement with employers in Arabic language or in Arabic and English languages that explains rights, obligations, subscription conditions, and financial services provided.
3. Documentation: To provide clear documentation, subscription forms and conditions for voluntary subscriptions, along with annual reporting obligations for data verification.
4. Volume of Funds and Assets Managed: The funds managed shall not be less than AED 1 billion. The Authority, in coordination with the Ministry of Human Resources and Emiratisation “Ministry” may amend the minimum limit.
5. Regulatory Compliance: To comply with the Authority’s guidelines in relation to the permitted investment instruments.
6. Coordination with the Ministry: Seeking Ministry’s approval on the fund structure, saving trustee, administrative services, and appointed fund operators.
7. Financial Solvency or Additional Capital: To provide not less than 2.5% of the total money invested in the fund and a maximum of AED 50 million. However, the Authority has the discretion to amend the maximum limit.
8. Experience and Guarantee: The service provider should have a relative experience of at least three years, and to provide a financial guarantee of no less than AED 5 million and submit a letter of guarantee, either a cash guarantee or a bank guarantee issued by a local bank.
9. Complaints Handling: To establish procedures for handling complaints within 10 working days of complaints lodging.

An investment funds administrative services company is committed to the following:

• To have at least 3 years of experience in administrative services or it may be exempted from this condition at the discretion of the Authority in coordination with the Ministry.
• To provide semi-annual statements of accounts and periodic reports to employers and beneficiaries and submit reports of compliance and financial performance to the Ministry and Authority.

Conditions for the Saving Trustee:

1. A local bank that holds a Saving Trustee’s license from the Central Bank, with a capital of no less than AED 3 billion.
2. To supervise at least AED 1 billion of funds and assets.
3. To have been practicing saving activities for a minimum of 3 years.
4. To audit annual reports, monitor performance, and notify the Authority of any observations.
5. To implement instructions of collecting, verifying and disbursing subscriptions and ensure that decisions benefit the beneficiaries.

Procedures for Establishing and Licensing End-of-Service Gratuity Savings Funds

• Requesting an approval to the incorporation and licensing:

1. The investment fund management company shall apply for an initial approval, with submitting the necessary documents and clearly specifying the name of the fund.
2. The Authority may request additional documents within 20 working days and issue its decision within 10 working days of submission, and it may link its approval to the conditions it determines or reject the request even if the required conditions have been met, according to the public interest.

• Issuing the establishment and licensing decision:

1. Certificate Issuance: The Authority issues a certificate within 5 working days upon payment of the license fees.
2. Licensing Validity: The license is valid for one renewable year upon paying an annual fee from the fund money.

General Provisions

1. Participation in the fund is through basic and/or voluntary subscriptions in accordance with the provisions of the Cabinet’s Resolution.
2. The investment fund management company should obtain the approval of the Authority and Ministry on decisions related to basic subscriptions, such as approving amendments to the terms and conditions of the fund document, changing the investment management company of the investment funds or service providers, terminating or liquidating the fund, converting or merging the fund, or appointing and changing fund management team if so required.

The author of this Galadari Insight is Bassem ElAzhary.
Bassem is a Senior Associate on the Corporate Commercial team at Galadari. He has almost two decades of experience in general corporate, commercial, and M&A transactions for listed companies across the MENA region.

For more information on this topic, please contact Bassem directly.

Baseem El-Azhary Senior Associate bassem.elazhary@galadarilaw.com