CFD brokers are going to Dubai

I’ve never been to Dubai but from pictures it looks like someone has taken the soulless architecture of Canary Wharf and kitsch of Knightsbridge, blended them together with the Instagram page of a Loughton estate agent, then dumped the mixture somewhere along the Persian Gulf and draped it in a kufiyeh. But I’m willing to be proven wrong.

And if you ignore my own snobbery, it does seem as though the region is doing well – at least for the CFD industry. It is likely IG’s most valuable market on a per customer basis. Plus500 got a licence from local authorities in February. Capital.com’s CEO claims they’re doing particularly well in the region. And CMC Connect is also about to set up shop there on the institutional side.

One of the first interviews I did on CFDs Weekly was with Reece Pawsey, the founder of recruiting firm FinTop Consulting, who noted that London and Cyprus were the first hubs for his business, but that Dubai was going to be one “in the near future.” Other executives in the sector are optimistic about the UAE too.

“I’d say Dubai was this place that for my whole career to date was always on the cusp of being ‘the’ place to be,” a senior marketing executive told me recently. “But now I think it really has hit that level. There’s a bit of a snowball effect happening because more and more people are moving there, which leads to more people moving and so on.”

So why are so many people going? Should you make the move as well? What does regulation look like? And who are brokers targeting in the region? Read on as we reveal all.

Why are people moving?

The simple answer to this is that there are more opportunities to do so but, as that implies, that’s because more brokers are setting up operations there. So there are really two questions to ask here, why are brokers moving to Dubai and why are people happy to go there to work for them?

With regard to the former, there appear to be three main reasons. An obvious one is tax. Dubai has a rather bizarre legal set up but companies established in its economic free zone pay no corporate tax. This is obviously very good news if you are a business owner.

Another point which was mentioned to me several times is the country’s position as a midway point between Europe and Asia. Just as London benefits from being ‘open’ during Asian and US trading hours, so too is there a sense that brokers with operations in the UAE can be effective in keeping in contact with partners or colleagues in Asia, Africa and Europe.

Finally, there are the clients. Although some brokers are not using their set up in Dubai to target locals, many are. IG’s results arguably provide a ‘clean’ snapshot of this, as reported revenue from the company’s EMEA-non EU clients, which excludes emerging markets and seems unlikely to include Russia, was £4,287 per client in the first half of the year.

“You basically have a small group of heavy hitters there,” said the CEO of one broker, who is not based in Dubai. “There are lots of high earning expats who pay no taxes and so have a lot of disposable income. Then you have a small group of locals, who make lots of money mainly from government jobs. There is a certain segment among them that, to be frank, loves gambling and speculative trading.”

So…why are people moving?

The reasons brokers are going to Dubai hint at the reasons people are willing to move there and work for them. Money is the defining theme, at least among executives that have moved there from the UK.

“Before I moved I was up for promotion at my UK company,” said one executive, who moved from a retail broker to an institutional role. “But then I had an offer from a company [in Dubai] that was literally double my salary. Then you have to think, because you aren’t paying tax, to get the equivalent salary post-tax in London, I wouldn’t have to double my salary, I’d have had to almost quadruple it.”

“Life here has its ups and downs for sure,” said another executive, who moved from a London broker to a tech provider in Abu Dhabi almost two years ago. “It feels a bit fake and plastic which you would expect as nothing is really natural here. The money is really good though and you can save a big percentage of your salary if you are sensible. My wife and I have found we do more activities here, compared to London and we are living healthier.”

Others have moved for less pleasant reasons. For instance, it’s notable that a significant number of executives from companies that were based in Russia have relocated staff to Dubai. Others have also moved from Syria.

Should you move?

For those that have more choice in moving, opinions seem to vary as to whether or not Dubai is actually a pleasant place to live.

“Dubai is one of the best places to live and raise kids,” said a senior executive at a broker in the region. “We have almost zero crime because we have almost no unemployment. With the peace accords that Trump pushed through, the Gulf region also got some stability and, coupled with ‘the year of tolerance’, the UAE took a giant step toward religious freedom. Unlike other middle eastern countries, you can find synagogues, churches and various temples in Dubai these days.”

Others were slightly less upbeat. This attitude was particularly pronounced among CFD Weekly readers living in the Levantine countries.

“Never,” said a Phoenician executive at one broker, when asked if they would move to Dubai. “I hate it. Every time I go there to meet clients I go insane. It is maximum rich trash. Old Dubai is nice. Nothing else is worth seeing unless you like shopping malls.”

Others were a bit more sanguine.

“If the political and economic situation in Lebanon was good, then I would definitely live there,” said another Phoenician at an institutional broker. “As that’s not happening today, I am going to live in Dubai.”

Others highlighted the problem that getting accustomed to not paying taxes brings. Some executives seem to go with a view to staying a few years but then find it’s not as easy as they thought it would be to move back.

“It ends up being a bit of a gilded cage,” said an executive in a compliance role, who has been in Dubai for close to five years. “I am thinking of moving back to the UK but if I do then the likelihood is my salary is going to be about the same as it is here. Except there I’m going to probably be losing over 40% of it to tax.”

CFD regulations in Dubai

Now I’m sure all of you would love to hear more heart-wrenching stories about people having to pay income tax again after a long stint in Dubai, but unfortunately there are other things we need to look at in this article, one of which is regulation.

Before looking into this properly, my assumption was that Dubai’s popularity was partly due to it also being a kind of offshore location, but more Seychelles and less St Vincent (or more Bahamas, less Marshall Islands?)

That is not entirely the case. For one, the capital requirements are pretty much in line with European regulators or ASIC. But the regulatory framework, as alluded to earlier, is also a weirdly convoluted one. This is because you have a regulator for firms nationally, that are based in the UAE, but then another local regulator, which covers companies based in Dubai’s economic free zone. Other Emirates, like Abu Dhabi, also have their own regulators.

Most brokers I see are going for a Dubai Financial Services Authority (DFSA) licence. This is the body which regulates companies in Dubai’s economic free zone.

Part of the reason for this is the fact companies based there don’t have to pay corporate tax. However, there is another reason, which is that firms based in Dubai proper must have a majority shareholder from the UAE.

This prevents many companies from setting up shop outside of the economic free zone and getting regulated by the national regulator, the Security and Commodities Authority (SCA). Equiti Group and ADSS are relatively unique in the CFD space, as they have a licence from this regulator, rather than the DFSA. MultiBank also seems to have one, although it’s not clear to me how they’ve structured this, they’re not owned by an Emirati.

Brokers with the SCA licence can play a sort of regulatory arbitrage. Firms regulated by the DFSA have the same sort of leverage restrictions that ESMA or FCA brokers do. The SCA – as far as I can tell – does not. However, it is clear that some DFSA brokers are doing the same thing they do in Europe and sending clients offshore to access higher leverage.

Who are the clients?

That ADSS and Equiti chose to get SCA licencing hints, to me anyway, at the fact they are likely targeting local clients. Another downside to getting DFSA licencing is that you cannot take deposits in UAE dirhams – the local currency.

Some DFSA brokers purport to offer this but it is rather hazy to me as to whether they actually are or not. Even if they are doing so, they shouldn’t be because it goes against the DFSA’s regulations.

This may not seem like a particularly big deal but apparently it is having an impact. A local crypto exchange called BitOasis, for example, has allegedly been able to pull in more UAE locals because of its ability to accept deposits in dirhams.

Not all firms are going after locals though. As the CEO quoted earlier noted, brokers are also targeting foreigners living in Dubai. However, even within this group you have a huge array of people.

“The audience is the whole eclectic mix of expats,” said an executive at one broker. “Europeans, Aussies, Southeast Asians, and whatever else, with different providers doing better among some groups than others. Plus [there is] some scooping up of traders across the MENA region too.”

The local market, expats or UAE citizens, is not the whole picture though. Some providers appear to have a large presence in Dubai but, like some of their peers in Cyprus, are focusing purely on emerging markets. Again this seems partly to do with tax but also simple time management – being in Dubai means you can be online at similar times to people in Africa and Southeast Asia, without killing yourself.

So there you have it, that’s why people are going to Dubai and what brokers are doing there. Would I want to go? Only if Nancy Ajram does first.