Dubai Watchdog Stiffens Oversight After Private Equity Fiascoes

Dubai’s financial regulator has been stepping up scrutiny of firms to avoid a repeat of two high-profile failures in the emirate’s private equity industry, Abraaj and Al Masah Capital Ltd.

“Through our supervision work, we look to probe firms more than perhaps we did, say, less than 10 years ago,” said Peter Smith, managing director and head of strategy, policy and risk at the Dubai Financial Services Authority.

The private equity industry in the Middle East’s business and trade hub has been rocked by the collapse of Abraaj in 2018 and the arrest of several of its executives amid allegations that it misused investor funds. Al Masah was placed in liquidation earlier this year after it was fined by the DFSA for allegedly misleading investors about fees and its founder banned from working in the Dubai International Financial Center.

In both cases, the companies were conducting business from offices in Dubai’s financial center but had funds registered in the Cayman Islands.

“We are very concerned about firms which structure their businesses in a way to try to avoid being authorized by us but nevertheless carry on their businesses within the DIFC,” said Patrick Meaney, head of enforcement at the DFSA. “At the moment we’re placing great scrutiny on the way which firms structure themselves.”

Meaney described Abraaj and Al Masah as “exceptions” and said the greater focus so far hasn’t resulted in a huge increase in investigations. “It’s not enormous and what that suggests is that it’s only a small number of firms doing this in the first place,” he said.

The regulator fined Abraaj a record $315 million for deceiving investors and misappropriating their funds. Following the case, the DFSA vowed to improve its oversight and review its approach to supervision.

“We have followed through on that,” Smith said. “We flagged publicly we would do that and we have.”

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