A special purpose entity aims to separate the liabilities and assets associated with a particular financing transaction from the liabilities and assets of the person who established the entity.
I issued Emirates Securities and Commodities Authority, today is Wednesday, Resolution to organize the special purpose entity(SPV), as part of its ongoing efforts to upgrade the regulatory framework for the securities sector in the country, to match the best international standards and practices.
The decision issued by the Authority’s Board of Directors aims to support the effectiveness of securitization systems. And the bonds Strengthening the investment funds industry in the country, and providing alternative financing opportunities for joint-stock companies, which in turn leads to enhancing the stability and growth of local financial markets.
Mohammed Ali Al-Shurafa, Chairman of the Authority’s Board of Directors, said that issuing the decision comes within the framework of the Authority’s commitment to strengthening the legal and regulatory structure of financial markets, and providing innovative and flexible mechanisms that meet the needs of the market, and support its ability to deal with economic challenges and changes.
He stressed the Authority’s continued commitment to enhancing the competitiveness of the UAE’s financial markets and strengthening the country’s position as a sustainable global financial centre.
Stimulating securitization operations
Dr. Mariam Butti Al Suwaidi, CEO of the Authority, said that the decision represents an important positive step towards stimulating securitization operations, sukuk issuances, and the investment fund industry. It also allows public joint stock companies to transfer assets to special purpose entities, which contributes to enhancing their ability to issue sukuk and other debt instruments backed by these assets, which in turn leads to attracting more investments to local financial markets.
The Authority explained that the decision comes in implementation of Federal Decree-Law No. (32) of 2021 regarding commercial companies, which assigned the Authority the authority to develop special texts to regulate special purpose companies, and that the regulation was prepared after reviewing the best international practices, and in consultation with the industry, experts, consultants, specialists and related parties.
The decision consists of 14 articles, which address the scope of application, classification of the special purpose entity, its nature, articles related to the procedures for requesting the establishment and licensing of the entity, the obligations of the entity’s manager, the cases and procedures for the expiration of the entity, and its liquidation, in addition to the authority’s powers related to oversight, inspection, violations and penalties.
Separation of liabilities and assets
The decision defined the “Special Purpose Vehicle (SPV)” as a company established with the aim of separating the obligations and assets associated with a specific financing operation from the obligations and assets of the person who established it, and used in credit, borrowing, securitization, bond issuance, and risk transfer associated with insurance, reinsurance, and derivatives operations.
Pursuant to Article (2) of the Resolution, its provisions shall apply to a special purpose entity established within the State, a qualified special purpose entity established in a free zone within the Emirates, the founder and manager of the special purpose entity, the auditor, consultants and service providers of the special purpose entity, and any entity or person associated with or related to the special purpose entity, while its provisions shall not apply to a special purpose entity established by federal or local government entities or companies wholly owned by any of them unless directed to the public, a special purpose entity established in a financial free zone within the State, as well as a non-qualified special purpose entity established in a free zone within the State.
The decision also specified the persons who can establish a special purpose entity, such as securitisation companies, investment fund management companies, joint stock companies, and natural or legal persons, in accordance with the provisions of the decision.
The decision included the mechanism for managing the entity, which is carried out by the “entity manager”, who must adhere to a number of provisions, the most important of which is prohibiting the entity from engaging in any purposes, tasks or businesses other than those for which it was established, with the exception of businesses supporting or incidental to those tasks or purposes, managing the entity and its governance, refraining from carrying out any merger operations or transformation into another legal form or division of the special purpose entity, and ensuring the entity’s compliance with the requirements contained in the relevant legislation.
According to the decision, the founder shall submit an application to the Authority to obtain its approval regarding the establishment of the special purpose entity and obtain a license to practice its purposes on the form prepared for that purpose, accompanied by documents and information supporting the application, and what confirms that the conditions and requirements specified therein have been met.
The Authority shall also issue its decision to approve or reject the application within a period not exceeding (5) working days from the date of submission of the completed application, provided that the Authority shall state the reasons for that in the event of rejection.
