How to Start a Non-Bank Financial Services Business in Dubai

How to Start a Non-Bank Financial Services Business in Dubai

Other Financial Service Activities, except insurance and pension funding activities is the longest entry in the catalogue and the least informative, and both of those facts are the subject of this page. It is a residual class: a line defined by subtraction rather than by description, holding the financial businesses that do not match any line with a name of their own.

Read it backwards and it becomes useful. Insurance and pension funding are lifted out of it explicitly, in the name. Deposit-taking is not in the catalogue at all — there is a line for advising a bank and no line for being one, because a bank is not something anybody incorporates from a list of commercial activities. And every financial business that has been given its own entry is lifted out of this one by being named somewhere else: forfaiting, financing broking, mortgage advice, payment services, trusteeship and custody, investment advisory work. What is left over is the non-bank remainder, and that remainder is this line.

The practical consequence is the whole of it. On almost every other activity in the catalogue the name does the describing: a reader of Textile Trading knows what the company sells before anybody explains. Here the name describes nothing, so the written description of the business carries the entire weight of the file — what moves, whose money it is, who the counterparty is, and how the firm is paid. Two companies can sit on this identical line and have nothing in common. One is a finance house putting its own balance sheet at risk; the other collects a fee for arranging something it never touches. They are not variants of one business, and anybody reading the licence has to be told which is which.

The money is earned in one of three ways, and the choice decides the balance sheet

A non-bank financial business makes its living from a spread, from a fee, or from a share of somebody else's outcome. Nothing else is available, and the three produce companies that look nothing alike.

A spread business puts money at risk and keeps the difference between what its funding costs and what the customer pays. That is a balance-sheet trade. The money advanced is the inventory, and unlike stock it does not turn faster when sales are good: it comes back on a schedule nobody can accelerate, and a single exposure that fails removes the profit earned on a long run of good ones. Growth has to be funded before it is earned, which means the real constraint on the business is not demand but the cost and the reliability of its own funding.

A fee business carries no asset at all. It is paid per transaction or per engagement for arranging, executing or administering, and the economics are the mirror image: light on capital, quick to scale, and the revenue stops the moment the activity stops. There is no book to live off in a quiet quarter.

A share of the outcome — success fees, performance fees, participation — is the most attractive on paper and the hardest to live on. The income is lumpy and arrives long after the cost of producing it, so it is something an established firm adds to a fee base rather than a model a new firm opens on.

The firm's own bank account is the hardest input to secure

A bank asked to open an account for a financial business is being asked to take on a customer whose business is handling money, frequently other people's, and it applies a correspondingly heavier standard than it would to a company importing furniture. Ownership and control have to be traceable, the people running the firm have to be credible for the activity, and the firm has to be able to explain the flow of funds through its own accounts before it has processed any. A plan that treats banking as a formality to be arranged after the licence is cut has put the two hardest steps in the wrong order.

CZ 313 — Other Financial Service Activities, except insurance and pension funding activities

Nobody can hand over the list of what belongs here, because a residual class has no list — it has a test, applied by elimination. Three questions settle it.

Is the activity itself financial? The product has to be money, credit or a financial instrument, not goods and not advice. A company selling software to lenders is a technology company; a company that lends is not.

Is it insurance or pension funding? If so it is outside by the name, under its own regime.

Does it match a line that already exists in its own right? This question does the real work and is the one most often skipped, because the catalogue is specific in places people assume it is vague.

The neighbours, and which way each boundary runs

Forfaiting Services and Financing Broker are both separate entries, so discounting receivables and introducing borrowers to lenders each sit on their own line rather than in the remainder. Payment Services provider is its own line, so moving other people's money between accounts is not in here either. Trustee, fiduciary and custody services on a fee or contract basis is its own line, so holding assets for a client belongs there and not here.

The advisory boundary is the one that catches most people. Financial consultancy, Investment advisory services, Investment Consultancy, Banking consultant and Mortgage Consultant are all separate lines, and they share one feature: the firm advises and the client acts. The moment the firm is the party that actually extends the credit, takes the position or executes the transaction, it has crossed out of consultancy and into a financial activity, and the licence has to follow it across. A consultancy permission does not stretch to performing the thing it was permitted to advise on.

Activities auxiliary to financial service activities is the closest neighbour and the easiest to confuse with this one. Auxiliary means the firm supports a financial transaction without being a party to it — administration, processing, services sold to the parties themselves. This line is for being the party.

And the sharpest boundary of all is the one the name does not mention. Own account investment activities, such as by venture capital companies, investment clubs etc is a separate entry, and the distinction is simply whose money is at work. Investing your own capital for your own return is not a service sold to anybody; it needs no customer and earns no fee. This line exists for a firm doing something financial for other people, which is why so much of what follows is about client money rather than about profit.

The last row is the one worth sitting with. In a financial free zone there is no residual bucket to fall into: the permission is named, and what the firm may do is the text of that permission rather than the text of an activity list. On the mainland and in a conventional free zone the activity line is the vocabulary, which is why a line that describes nothing has to be accompanied by a description that does.

A financial line is licensed on its own terms, and that condition governs everything else

The most expensive misunderstanding on this activity is treating it as a commercial licence that happens to be about money. A financial activity carried on as a business is licensed on its own terms, and no general commercial or consultancy permission reaches it. Where a firm takes funds from the public, advances credit, or handles money and instruments belonging to somebody else, the control is continuing rather than a single permission at the start: who owns and controls the company, who is accountable for running it, how client funds are kept apart from the firm's own, what records are kept, and what has to be reported and to whom. Onshore, the Central Bank of the UAE is the authority for banking, financing, payment and money-services activity; in a financial free zone those questions are asked by the zone's own regulator against its own rulebook.

Two further conditions attach whichever route the firm takes. A financial business sits squarely inside the UAE's anti-money-laundering framework — customer due diligence before a relationship starts, record-keeping that can be produced on request, and an obligation to report suspicion through the federal channel, all falling on the firm's own officers rather than on a service provider it hires. And the tax position is not the ordinary one: corporate tax applies as it does to any UAE business, but the value-added tax treatment of financial services is a specialist question rather than a default, because which fees are taxed turns on how a service is characterised rather than on what the invoice is headed.

What none of this can tell you is the shape of your own file. The permissions that apply, the conditions attached to them and the cost of holding them differ between the emirates and between the authorities, and for a residual line they turn on the description of the business rather than on the code. That description is the work, and it is what ConsultZone prepares and confirms with the relevant authority before anything is committed.

References

1. Central Bank of the UAE — the authority for banking, financing, payment and money-services activity onshore, and for the conduct obligations that attach to firms handling client funds. Central Bank of the UAE
2. Ministry of Economy — company matters, commercial activity and the corporate filings a licensed company carries. Ministry of Economy
3. Federal Tax Authority — corporate tax and value-added tax enrolment and filing, including the treatment of financial service fees. Federal Tax Authority
4. Ministry of Finance — corporate tax policy and the federal instruments behind it. Ministry of Finance