INSITE - UAE- June 2025
- sukhwinder21
- Aug 25
- 4 min read
DIFC OPENS PUBLIC CONSULTATION ON VARIABLE CAPITAL COMPANY (VCC) REGULATIONS
Summary: The DIFC Authority has launched a public consultation on its Draft Variable Capital Company Regulations. This proposed regime introduces a flexible investment vehicle tailored for proprietary investment activities, drawing inspiration from similar frameworks in Singapore and Mauritius. The consultation period is open until 24 July 2025, inviting stakeholders to share their feedback.
In Detail: The DIFC Authority has opened public consultation on its Draft Variable Capital Company (VCC) Regulations, introducing a flexible, private limited company structure tailored for proprietary investment and asset-holding strategies. Inspired by models in Singapore and Mauritius, this new framework complements the existing Protected Cell and Incorporated Cell Company regimes, yet operates outside of the regulated financial services sphere, broadening access for non-regulated participants.
The VCC framework is designed to benefit a diverse range of stakeholders by offering:
Ring-fencing of family assets through the creation of tailored investment cells suited to individual family members or objectives.
A flexible vehicle for managing alternative investment funds, such as private equity or hedge funds, under a single umbrella structure.
The ability to use VCCs for asset holding, proprietary investments, and structured financing, particularly by DIFC-registered or authorised firms.
New business opportunities for legal advisors and corporate service providers in the areas of formation, governance, and ongoing administration.
Access to scalable, well-structured, and legally sound investment platforms for investors and institutions seeking efficient structuring solutions.
Key Features of the Draft Regulations
Flexible Structuring: VCCs may be standalone or umbrella entities with either segregated cells (non-legal entities) or incorporated cells (separate legal entities), but not both.
Capital Flexibility: VCCs can issue/redeem shares based on NAV and make distributions from capital, not just profits.
Qualifying Criteria: Applicants must be controlled by GCC Persons, DIFC Registered/Authorised Firms, or serve qualifying purposes (e.g., asset holding, aviation, IP, crowdfunding).
Robust Asset Segregation: Strong legal separation between cellular and non-cellular assets ensures creditor protection and structural clarity.
Corporate Mobility: Clear provisions for cell creation, transfer, merger, and conversion, including transitioning into or out of VCC status.
Governance Duties: VCC officers are personally liable for breaches in asset segregation or for misleading counterparties.
Creditor & Shareholder Protections: Embedded rights to object to restructurings, dispute resolution mechanisms, and access to court intervention.
Winding-Up Rules: A VCC cannot be dissolved unless all incorporated cells are first dealt with. DIFC Insolvency Law applies with necessary adaptations.
SAUDI CMA ISSUES REGULATION ON CLOSE-OUT NETTING AND COLLATERAL
Summary: On July 2, 2025, the Saudi Capital Market Authority (CMA) issued the Close-out Netting and Related Collateral Arrangements Regulation, creating a clear legal framework for the enforceability of netting agreements and collateral arrangements involving qualified financial contracts. The regulation aims to enhance legal certainty for financial market participants, especially in bankruptcy scenarios, strengthening risk management and market stability.
In Detail: The CMA Board has approved the Close-out Netting and Related Collateral Arrangements Regulation, which governs netting agreements and associated financial collateral arrangements where at least one party is a capital market institution. The Regulation becomes effective from the date of its publication.
The primary objective of this framework is to reinforce financial system stability and protect investor interests by ensuring the enforceability of Qualified Financial Contracts (QFCs), particularly in the event of a default by either party. It provides legal certainty by safeguarding contractual rights under netting agreements, even amid financial distress or insolvency.
The Regulation applies to netting agreements and collateral arrangements linked to one or more QFCs that fall under the CMA’s supervisory scope, provided a capital market institution is a party to the arrangement. It outlines procedures for handling defaults and other specified scenarios, ensuring the terms of such agreements remain valid and enforceable, regardless of any subsequent change in the financial condition or legal status of the parties.
Key elements of the Regulation include:
Definitions of critical terms such as netting agreements, qualified financial contracts, and financial collateral arrangements.
Clear identification of the scope of application, covered entities, and transactions exempt from Saudi Arabia’s Bankruptcy Law.
Provisions governing close-out netting, treatment of collateral, and protection of contractual rights during insolvency.
This regulatory development aligns Saudi Arabia’s capital markets with international standards, particularly reflecting principles advocated by the International Swaps and Derivatives Association. By incorporating best practices in close-out netting legislation, the CMA aims to promote legal certainty, enhance cross-border compatibility, and support the enforceability of financial contracts irrespective of post-execution events, including bankruptcy proceedings.
Overall, the Regulation represents a significant step toward strengthening the legal infrastructure of Saudi Arabia’s financial sector, supporting sustainable market growth and investor confidence.
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