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All You Need To Know About Startups In ADGM

A special focus on financial startups and fintech, with reduced costs compared to peers in the region.

A first in the region, ADGM has a quantified approach towards startups and boutique firms. It recognizes the ability for newer players to enter the market is key to developing a broad-based and thriving financial centre. With this in mind, the ADGM framework offers many incentives for startup firms to set up base and obtain authorizations to do business.

Prelude:

The GCC has seen a lot of activity in the financial services business in recent years. The Dubai International Financial Centre, or DIFC, established in 2004, has positioned itself as the leading onshore financial center in the region. The Qatar Financial Centre (QFC) didn’t quite see the success that it would have wanted to, while the King Abdullah Financial District in Saudi has been met with mixed responses.

A significant challenge in setting up a business in the financial space here, is the costing. High licensing and operating costs, coupled with additional premiums for the real estate, have dissuaded many of the smaller players from establishing a base in the region. The Abu Dhabi Global Market (ADGM), has quietly been working to resolve this issue, by providing many incentives for startups to set up shop.

Activity-based fee structure

Unlike other regional financial centres, which implement a tier (or category) based fee structure, the ADGM has opted for an activity-based fee structure. Fees for FSRA authorizations start from as low as US$ 5,000 for a single activity of advising on investments. This helps startups to keep costs down at the onset, and add activities as and when opportunities arise.

Reduced office space costs:

Startups usually require 2-3 desk spaces to commence operations. Investing in a bigger office space entails not only rental costs, but upfront fitout costs as well. Within the ADGM are two cost-effective business centers, that offer desk spaces suited to requirements of smaller firms. With the convenience of plug-and-play operations, and shared facilities (such as conference rooms), setting up is a lot more economical as compared to other regional financial centres.

Different categories of fund managers (for authorisation purposes)

The ADGM, while undertaking the authorisation process, sifts applicants into three categories: Startups, Restricted and Retail FMCs, with a less rigorous and risk-proportionate approach applied to a fund manager’s application when non-retail funds are being managed (i.e. catering to professional investors only) in comparison to a more rigorous approach that is applied to the application of a fund manager seeking to manage and sell Public funds.

FMCs managing less than 30 professional clients, with an AUM of lesser than US$ 250 million, are categorized as startups.

Path-breaking initiatives for fintech players

The ADGM has developed the RegLab, which is a specially tailored regulatory framework that provides a controlled environment for FinTech participants to test innovative solutions. With reduced incorporation and license fees for the first two years, and affordable co-working spaces, FinTech startups can take advantage of working with fellow participants in the field, sharing knowledge and testing cutting-edge solutions, all within the envelope of a well-regulated framework and excellent physical infrastructure.

Flexible and low-cost Special Purpose Vehicles

While this offering is relevant to holding structures, proprietary investment companies and transaction-based requirements, the flexibility and convenience of the SPV regime, coupled with the robustness of a common law framework, at a relatively low cost, strengthens the perception of the ADGM as a centre which constantly offers ‘value for money’. Besides, startups can use these cost-effective structures to establish holding companies, that can attract further investments in the course of their growth trajectory. SPVs also offer multiple classes of shares with different voting rights, which is fundamental in such arrangements.

Endnote:

The ADGM has, over a period of around 18 months, amply demonstrated it’s intentions of being a centre that is responsive to the market. Positioning itself as a startup-friendly jurisdiction will help it amplify the differentiating factor, create more buzz and in due course, prove to be a worthy challenger to the more established financial centers in the GCC. Whether it continues to do so five years down the line, remains to be seen. Nevertheless, a good start and a great trajectory!

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