REGULATORY FRAMEWORK TO OBTAIN A FOREX TRADING LICENSE IN THE UAE

In the world of finance and investment, forex trading has gained immense popularity due to its potential for high returns. In the event you would like to consider venturing In UAE Forex trading; you might be wondering about the legal aspects especially if Forex investment in UAE is your primary objective to run a professional practice.

Dubai: Is forex trading legal in the UAE?

This article aims to provide you with a comprehensive answer to this vital question especially that the UAE forex trading opportunities are always on a rise

The Legal Framework in the UAE

When it comes to the forex trading legality, the UAE has a clear and well-defined legal framework in place. Forex trading is legal in the UAE, but there are specific regulations and guidelines that traders and brokerage firms must adhere to.

Here are the key points you need to know:

SCA UAE forex regulations: The Securities Commodities Authority (SCA) of the UAE is the primary regulatory authority responsible for governing all non-banking financial activities, including forex trading, contracts for difference (CFD) trading, and other online financial activities.

SCA’s primary objective is to enhance the capital market and stimulate economic growth in the UAE by attracting foreign investments and providing a stable environment for forex trading. The Central Bank of the UAE also plays a significant role in regulating forex brokers, while SCA issues the necessary licenses.

Due to the fact that the  UAE forex market is increasing in volume year on year, therefore the legislator has engaged in making sure to control this activity and its practitioners to meet up with international best standards and practices whether it implies: Forex trading platforms, Forex trading strategies, Forex trading education, Forex trading methods, etc.

UAE forex market regulations:

1. Licensing and Compliance

To engage in forex trading in the UAE legally, traders and brokerage firms must work with licensed and regulated entities. These entities are required to comply with strict regulatory guidelines to protect the interests of traders and investors.

• Compliance with Sharia Principles: Forex trading in the UAE is conducted in accordance with Islamic finance principles. Trading in currencies that involve interest (Riba) is strictly prohibited. Islamic forex accounts are available to ensure compliance with Sharia principles.

• Investor Protection: UAE regulations prioritize investor protection. Forex brokers are required to segregate client funds from their operational accounts, ensuring the safety of investors’ capital.

• Transparency and Reporting: Forex brokers operating in the UAE must maintain transparent records and provide regular reports to regulatory authorities. This includes disclosing financial data, client transactions, and relevant information.

Forex brokers in UAE are all regulated and currently the SCA is conducting an awareness campaign to combat any broker operating without the required licensing. Forex regulations in UAE must be respected at all times, as any failure of doing so will lead into legal actions and probably business seizure and closure.

2. Establishment Requirements:

To offer non-banking financial services like forex trading in the UAE, entities must establish a legal presence within the country. This can be done either in the mainland or within one of the financial free zones. The UAE strictly prohibits entities from engaging in forex or online trading without the proper licenses, which must be obtained through the appropriate channels.

Accessible Alternatives for Establishing a Forex Trading Company in UAE

The UAE offers various options for foreign investors looking to establish a forex trading company. It’s important to note that, due to the regulated nature of forex trading in the UAE, obtaining a license from any free zone alone will not suffice.

Here are the primary regulated options for Forex trading licenses in UAE:

Option-A: UAE Mainland Company

A forex trading license can be obtained by establishing a mainland company in the UAE. The Department of Economic Development (DED) in Dubai and other emirates issues licenses for mainland companies

• Business activities offered by mainland for forex trading and other online trading include foreign shares and bond brokering, foreign securities promotion, remittance of local and foreign currencies, and brokerage in commodities and securities listed in foreign markets.

However, mainland company licenses typically require a UAE national to hold a minimum of 51% shareholding in the company, although this shareholding requirement may vary depending on the type of company.

Mainland companies have the advantage of freely accessing UAE markets and customers. Along with the DED license, investors are required to obtain subsequent approval from SCA, and the company’s services will be regulated by the Central Bank of the UAE.

Option-B: Free-Zone Company

Two significant financial free zones in the UAE, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), offer licenses for forex trading and non-banking financial activities.

Unlike mainland companies, free zone entities do not require a partnership with a UAE local sponsor.

Companies established in these free zones are generally restricted from directly approaching the local market for trading. These financial free zones have their own sets of rules, regulations, and regulatory authorities governing non-banking financial services providers.

          DIFC (Dubai International Financial Centre)

The DIFC operates independently and has its independent legal system. Generally Service providers in DIFC are regulated by the Dubai Financial Services Authority (DFSA). The DIFC offers a wide range of activities to foreign investors, including 100% ownership and zero taxation, making it an attractive option for establishing a presence in the UAE.

          ADGM (Abu Dhabi Global Market)

ADGM, similar to DIFC, is a financial free zone in Abu Dhabi with comparable characteristics and provisions. The Financial Services Regulatory Authority (FSRA) regulates non-banking financial activities for online trading companies in ADGM.

Option-C: Representative Offices

Another option is registering a representative office in a free zone. One of the common and affordable choices for this is the Dubai Multi-Commodity Centre (DMCC). This option is suitable for those who need a presence in Dubai without explicitly applying for a Forex Trading License. It’s important to note that the holding company must be engaged in similar activities in another country to obtain a representative office license.

DMCC offers two types of forex trading activities, including trading in Forex, OTC, and Exchange Traded Derivatives, and trading in the proprietary account on regulated exchanges.

Considering Forex trading risks and Forex Trading benefits before investing as an individual willing to trade becomes a must especially as a beginner. Forex trading for beginners in UAE compels you to consider forex education prior to start any forex trading activity, know which entity you are dealing with and if it fits all of the Forex trading legality requirement in UAE. It is best to conduct a thorough Forex market analysis before venturing in any investment whether you are considered as beginner or a professional investor. 

In conclusion, forex trading is legal in the UAE, but it is subject to rigorous regulatory oversight. To engage in forex trading in compliance with UAE regulations, it is essential to establish a licensed entity either in the mainland or within a financial free zone and adhere to the rules set forth by the relevant regulatory authorities. Each option has its advantages and specific requirements, so seeking advice from legal and business experts is advisable when making a decision.

AS Partners, will be issuing consequent Forex trading tips to cover the legal spectrum as well as UAE forex market update from a regulatory perspective.

We thrive to assist investors and well established broker brands setting up their forex business in the UAE. We also support in the event you believe your forex broker or any of the trading activity is not fitting the norms and looks suspicious. à Book an appointment