After years of negotiations, GCC authorities have adopted a regulatory framework for fund passporting toward enhancing integration between the Gulf’s financial markets come early 2025. While welcomed, several experts cautioned IFN Investor against speedy exuberance for this initiative.
Apex Group UAE Chairman and Non‑Executive Director Bhaskar Dasgupta said: “The passport will help with GCC firms’ formation of capital, since they now can access liquidity pools across the entire region, which in turn, will further boost the financial services industry in the Middle East.”
As this framework is not binding until the respective Gulf states complete individual legislative procedures, via the parliamentary process or executive decree issuance, Bhaskar said actual implementation will not be immediate – even if such legislation is prioritized.
“Chances are high that the impact of this change will be felt more by new fund operations rather than at existing firms. It will be an evolution that will likely become significant two to three years on, accelerating subsequently to align with strategic directions of individual operators.”
Bhaskar also postulated that certain fund types may congregate at certain localities, akin to trends seen when Europe adopted a similar fund passporting regime before the turn of the millennium – but it is unclear if incentives offered by various jurisdictions may be persuasive.
Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings, is looking forward to a more secure financial environment with lower regulatory barriers as the framework will streamline processes, expedite procedures and open up new investment opportunities within the GCC financial markets.
“This move has the potential to enhance investor and fund manager confidence, and additionally promote the status of the GCC states as a leading international investment hub. The framework could also stimulate cross-border investments, leading to greater market liquidity and competition.”
Potential challenges include differing interpretations of regulations, initial setup and ongoing compliance requirements as well as geopolitical risks. “For Islamic funds, differences in Shariah interpretation both across and within jurisdictions, could affect investor appetite.”
Another potential factor would be increased “outflows could impact the local financial sector, market liquidity and pose regulatory challenges. Administrative bodies might face an increased burden to ensure compliance across multiple jurisdictions”.
Meanwhile, Saudi Arabian compliance advisory firm ValueExperts CEO Ahmed Bishri hailed the simplifying of the process for investment funds launched in one GCC state to be marketed and distributed in other member states – together with robust governance and transparency measures, ensuring that investment funds adhere to ethical and operational best practices.
“The GCC’s fund passporting framework has the potential to significantly alter the landscape for foreign funds operating in Saudi Arabia …(as) the new framework might eliminate or reduce the need for foreign funds to engage a local Saudi distributor.”
Stressing that local investor protection may get compromised, Ahmed added: “The financial markets of GCC member states vary in maturity and capacity. Adapting to a unified framework could take longer for certain states, potentially delaying seamless fund passporting across the region.”
Also read: Spurring savings, pensions in GCC region
