The Dubai International Financial Centre (DIFC) is more than just a financial hub—it’s a gateway to growth, offering a wealth of opportunities for local, regional, and international institutions.  Among its many offerings, the Category 1 license stands out as a key facilitator for firms looking to make a significant impact in the financial world. Let’s dive deeper into the intricacies of this license and its requirements.

What is a Category 1 License?

A Category 1 license in DIFC is not just a permit—it’s a passport to a world of possibilities. It allows a firm to conduct activities such as accepting deposits or managing an unrestricted profit-sharing account, typically associated with banks.

What are the Key Requirements for a Category 1 License?

Obtaining a Category 1 license in DIFC is a journey that requires meticulous preparation and adherence to stringent requirements. These requirements ensure that only the most qualified and capable institutions can operate within this category. Here’s a closer look at these key requirements:

Capital Requirements for obtaining a Category 1 license in the Dubai International Financial Centre (DIFC):

1. Base Capital Requirement

What is the minimum amount of capital that a firm must have to operate under a Category 1 license?

The base capital of US$ 10,000,000 acts as a safety net, ensuring that the firm has sufficient funds to meet its obligations. It’s a way of ensuring that the firm is financially stable and can withstand potential losses.

2. Risk-Based Capital Requirement

This requirement considers the specific risks that a firm might face. The Common Equity Tier 1 (This includes permanent, fully paid up, perpetual share capital, share premium, and retained earnings) must be at least 6%, and Tier 1 must be at least 8%. These percentages represent the proportion of a firm’s total risk-weighted assets that must be held in high-quality capital. This requirement ensures that the firm has enough capital to absorb losses arising from the risks it takes on.

3. Capital Plan

The capital plan, captured in the Internal Capital Adequacy Assessment Process Report, is a comprehensive plan that outlines how the firm will manage its capital and meet its capital requirements. It includes projections of the firm’s capital needs, strategies for maintaining adequate capital, and contingency plans for dealing with unexpected events or losses.

What is the capital requirement to set up a Branch?

For an existing regulated bank setting up a branch, the capital requirement is not applicable, providing an easier pathway to extend their operations.

What are the Staffing Requirements?

The staffing requirements for a Category 1 licensed entity depend on the scale, scope, and nature of the product portfolio that is proposed to be offered by the DIFC. The Dubai Financial Services Authority (DFSA) expects to see the following appointments at a minimum:

• Senior Executive Officer (SEO): The SEO is responsible for the management and conduct of the business and must be resident in the UAE.

•  Finance Officer: The Finance Officer is responsible for the financial management of the firm.

• Compliance Officer: The Compliance Officer ensures that the firm complies with DFSA rules.

• Money Laundering Reporting Officer (MLRO): The MLRO is responsible for the firm’s compliance with anti-money laundering laws.

Premises While the premises requirements for a Category 1 license in the DIFC are not explicitly stated, it’s important to note that the DIFC is a physical location, and firms operating there typically need to have a physical presence. Here are some general considerations: Here are some general considerations:

1. Office Space: Firms are usually required to have a physical office in the DIFC. The size and nature of the office would depend on the nature of the business, the number of employees, and other factors.

2. Facilities: The office should be equipped with the necessary facilities to carry out the firm’s activities. This could include things like meeting rooms, IT infrastructure, etc.

3. Lease Agreement: Firms would typically need to enter into a lease agreement with the DIFC.

Regulatory Compliance

Entities holding a Category 1 license must adhere to the guidelines and regulations established by the Dubai Financial Services Authority (DFSA). These requirements encompass strict observance of the DFSA’s Conduct of Business rules, particularly related to client classification.

Additionally, firms with this license are prohibited from accepting deposits or engaging in transactions involving UAE Dirhams (Article 6 of the AML-CFT Decision). Furthermore, they cannot accept deposits originating from the State’s markets. Violating these regulations may lead to the withdrawal of the firm’s authorization by the DFSA.

In summary, Category 1 licensed entities must diligently follow these rules to maintain compliance and avoid any adverse consequences.

Conclusion

Obtaining a Category 1 license in DIFC is more than just a regulatory requirement—it’s a significant step for any financial institution. It allows the institution to operate in a globally recognized financial hub and provides access to a wide range of opportunities. However, it also comes with stringent requirements and regulations to ensure the integrity and stability of the financial sector. As you embark on this journey, remember that the road to success is always under construction. Keep building, keep growing!

Looking to become an Authorized Company in the DIFC? Our team at Bizzmosis can assist you every step of the way. Get in touch today to start your journey.

At Bizzmosis we provide transparent, impartial guidance and support. Ensuring we have the latest relevant updated information on the UAE corporate legal framework at a federal level.

This article has been drafted by Marco Marazzi, Business Solutions Legal Advisor at Bizzmosis Group.

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