Dubai International Financial Centre (DIFC) is expected to continue the shake-up of its fee structure this year, a move that it started late last year when it slashed fees for captive insurance by up to 90 per cent.

Dubai Financial Services Authority (DFSA), the centre's regulator, is slated to issue a consultation paper that would put forward the proposed changes to the collective investment funds regime next month. The paper will present the draft rules, which would substantially reduce licensing fees and other associated costs of fund managers.

"Hopefully it will be in April," a spokeperson told Emirates Business.

Ian Johnston, DFSA's Deputy Chief Executive and Managing Director, earlier this year told this newspaper that the finalised version of the fund regime will be rolled out the in the middle of 2010. In addition to fee modification, the paper will also lay down the mechanisms for launching exempt funds, a new category of funds that will be subject to lighter regulations but will only be available for a limited number of high net worth individuals.

These changes were recommended by the market practitioner panel DFSA appointed in July 2009 to review its fund regime.

The public is usually given two months for comments, which will then be reviewed by the Legislative Committee whose duty is to assist the DFSA board in discharging its policy-making and legislative functions. This includes the development of legislation related to the regulation of financial services and related ancillary activities conducted through DIFC.

Meanwhile, DIFC has already received two captive insurance applications after it reduced rates. One is in the final stages and is now subject to final DFSA approval, said Tim Tovell, Captives Director, DIFC.

There are three captive managers licensed in DIFC, all of whom administer the captives on behalf of their owners – Aon, Kane Ltd and Marsh. Currently, there are two licensed captives in the centre – Dubai Holding Insurance Services PCC Ltd and MDC (Re) Insurance Ltd.

 

Captive insurers

 

The basic concept of a "captive insurer" is that it allows a company (or group of companies) to manage risk by establishing a legal entity that will insure its own risks (and perhaps also the risks of related companies).

The concept itself has been around for more than a century and is very popular with large corporations around the world: some two-thirds of Fortune 500 companies own captive entities.

According to the international law firm Clyde & Company, there are well over 5,000 captive vehicles worldwide but only a handful are found in the GCC and Mena region.

The best known examples are the captives licensed in Bahrain in 2006 for UAE-based company, Tabreed, the Dubai Holdings captive that was the first such captive in the DIFC in 2007; Qatar Petroleum's Al Koot captive in Qatar; and quasi-captives set up in Saudi Arabia in the past by motor dealers.

Those high-profile examples have, however, as yet failed to spark widespread interest in, or act as the catalyst for rapid growth of, captives elsewhere across the region.