ADGM established a regulatory framework that requires SPV’s to employ CSPs

Introduction – Overview of ADGM’S new regulatory on CPS

Abu Dhabi global market (ADGM) established a regulatory form that requires Special Purpose
Vehicles (SPVs) to employ Company service providers. The International Financial Centre of
Abu Dhabi, Abu Dhabi Global Market (ADGM), has today introduced its framework to regulate
Company Service Providers (CSP) framework in ADGM. This comes after the ADGM
Registration Authority successfully completed a public consultation on the adoption of a
commercially balanced and proportionate CSP Framework (RA). The legislative change is in
accordance with the ADGM’s policy of maintaining global standards while also ensuring that
laws are not too burdensome and adequate for the demands of the business sector. The new
CSP framework establishes a more robust regulatory framework by incorporating international
best practices.

What is Abu Dhabi Global Market?

Abu Dhabi Global Market is intended to serve as a diverse financial services hub for local,
regional, and worldwide businesses. Entities incorporated under ADGM are subject to civil law
commercial and regulatory environment. The Registrar’s duties include “the registration and
licensing of ADGM establishments, including companies, partnerships, and branches, as well as
receiving notifications of a change in an ADGM establishment particulars, such as a change in
business name, director, or registered address, and also for striking off or restoration of ADGM
establishments, “according to the Registrar. The ADGM is a well-known jurisdiction in terms of
excellent governance and transparency for firms and CSPs looking to establish themselves, and
it is constantly working to create laws to strengthen rules and regulations for all organizations.
This move is in accordance with the company’s philosophy of bringing ADGM up to international
standards.

SPVs are passive holding firms created to isolate financial and legal risk by ring-fencing specific
assets and liabilities. The ADGM SPV regime is benchmarked to leading alternatives around the
world and is designed to be flexible, robust, straightforward, and efficient.
Unless excluded, SPVs and foundations mush always have a CSP under the new requirements.
A CSP is a person who is authorized to supply company services under the ADGM. Acting as
an incorporation agent in connection with the incorporation entity In the ADGM, providing
company services to an entity incorporated or registered in the ADGM, supplying directors,
company secretaries, registered agents, or other offices to an entity incorporated or registered
in the

SPVs and foundations are now required to appoint a CSP that is permitted to operate in the
ADGM, unless they are exempt, under the revisions to the legislation introduced by the ADGM.
CSPs, in turn, are subject to a slew of rules controlling, among other things, record-keeping and
the protection of client funds. Company Service Providers are the authorities in charge of
overseeing company service providers, which are businesses or individuals that provide
corporate services such as company formation, directorship/company secretary services, and
the provision of a registered office, busines, or correspondence address.

Aim of the Company Service Providers

The overall goal of a CSP Is to assist SPVs and Foundations in their activities, as well as to
develop strong governance for these entities and to make dealings with the ADGM Registrar
easier. The new CPS framework is intended to address the issues and dangers that may arise
as a result pf growing success and desire for such structures in ADGM, especially where these
entities are not directly connected to ADGM.

Who is exempted?

All SPVs and Foundations will be subject to this regulation, except for those that can
demonstrate a high level of “economic substance” or presence in the UAE (major assets,
resources, and experience) or re licensed and regulated by the central bank.

This means that all existing non-exempt SPVs and Foundations that did not engage with a CSP
prior to or after incorporation must do so within 12 months of the implementation date, or by
their next commercial license renewal date, whichever comes first. All newly formed, non-
exempt SPVs and Foundations will need to designate a CSP three months from the
implementation date, on July 12, to be incorporated. CPs must meet regulatory standards such
and being fit and suitable individuals, maintaining adequate insurance coverage, and displaying
adequate financial systems and human resources.

If an SPV is a subsidiary undertaking of any of the following, it will be free from the requirement
to select a licensed CSP: A Company that has shown to the satisfaction of the ADGM Registrar
that it has sufficient presence in the UAE in terms of assets, turnover, and personnel. An SPV
must also demonstrate to the Registrar that it can function freely in the Emirate, a person who is
exempt from the obligation of obtaining a license to engage in a controlled activity in or from the
ADGM; a person in the ADGM who is permitted to engage in a regulated activity; a person who
is licensed or regulated by the Central Bank of the United Arab Emirates and a corporation
whose shares is listed on a regulated exchange in the United Arab Emirates (including the
ADGM).
Similarly, if a foundation exhibits, and the ADGM Registrar approves, considerable resources,
experience, and staff in the UAE, as well as adequate governance, rules, and procedures, it will
be excluded from the requirement to appoint a CSP.

Deadlines for Compliance:

Compliance deadlines are as follows: If you were formed or registered before or on March
17,2021, you must appoint a licensed CSP by the earliest of its next commercial license renewal
date or April 11, 2022. If formed or registered after March 17,2021, but before April 12,2021, a
licensed CSP must be appointed before the first commercial license renewal date. If established
or registered after April 12,2021, a licensed CSP must be appointed from the date of
incorporation or registration (as applicable).

Within 14 days of the appointment or removal of a CSP, an SPV must notify the ADGM
Registrar. If an SPV notifies the ADGM Registrar of a person ceasing to be a CSP, the notice
must either contain information about the SPV’s new CSP or a declaration that the firm is no
longer subject to the new obligation.
Requirements on CSPs

The CSP Framework imposes several regulatory requirements on CSPs, including proving to
the Registrar that an applicant for a license to provide company service meets specific
conditions applicable to the controlled activity, such as: the controlled activity is consistent with
the Abu Dhabi Global Market’s objectives, The applicant has sufficient capital, and qualifications
to carry out the controlled activities that it intends to carry out in the Abu Dhabi Global market.
The applicant’s legal form is appropriate for the controlled activities that the applicants intend to
conduct in or from the Abu Dhabi Global Market, and the applicant’s registered office or branch
from which the controlled activity would be conducted is appropriate for such purposes and, in
the case of applicants who now have or formerly held a license, the applicant has met all of the
criteria of such license in all material aspects. These standards are in addition to the UAE
Economic Substance regime’s usual policies, controls, and procedures for providing services in
compliance with any outsourced arrangements.

Conclusion

For Abu Dhabi Global Market Company Service Providers and companies affected by the
proposed regime, the new regime is a game-changer It puts ADGM in line with international
norms and practices and introduces a higher quality of governance and control to an area
identified in the recently issued MENA FATF evaluation of the UAE. Other Free Zones and
International Business Centres hoping to attract significant investments are likely to keep an eye
on it. Its overall efficacy will have to be proven in the future, but CSPS who are serious about
their business should embrace these developments.