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A couple of weeks ago we looked at payments in the prop industry and then followed that up with an interview with the team at Paytiko.
One of the things the team there highlighted, along with a Dr Evil-esque number of clients, was that there is already some tightening on the prop industry in Dubai by local banks and payment providers.
It’s hard to say if this is having a meaningful impact so far. An obvious way you would see that is if props were blocking access to clients in the United Arab Emirates (UAE), which most of them are not doing.
The other factor is, if you are blocking clients in the UAE, it could easily be because of another important factor, namely ‘rabbits don’t eat the grass by their burrow’ or – and forgive the crudeness – ‘don’t shit where you eat’.
This is a common method in the broker industry. For example, some brokers have a base of operations for LATAM in Uruguay but don’t take clients in Uruguay. The same is true for Malaysia and Asia. Basically, props won’t take UAE customers because they are based there and it could cause problems for them if they do.
However, there could be more nuance to this as well. For example, Prop Firm Match currently lists six firms that block access to UAE customers. Of those…
- Two are registered in the UAE
- One has a financial license in the UAE and an office there
The remaining three do not appear to have a connection to the UAE but it’s always plausible there is a holding company we do not know about. One other firm could be applying for a license there for its broker arm, although I have no idea if that’s the case.
The point is that if you have some connection to the UAE, it might make more sense not to take customers from there.
But beyond not eating the grass next to your burrow, this could also be for a mix of regulatory and payment reasons.
As we noted in the prior payments piece, a lot of prop firms say they are education providers. This is a reasonable move to make as it helps them avoid regulatory headaches and can make payment processing smoother.
But in the UAE, there is actually regulation governing education providers. The Knowledge and Human Development Authority (KHDA) has legislation that means a firm that sells private educational services in financial services would be treated as a Training Institute.
Regulations covering Training Institutions include those offering training in ‘investments and financial securities’. For example, Financial Markets Online, a trading education company with UK and Dubai branches, has some kind of approval from the KHDA.
I will quote UAE law firm Al Tamimi here, who note…
In Dubai, training institutions are regulated by the KHDA – regardless of whether those institutions are registered in Free Zones or in mainland Dubai.
[An] entity interested in providing services in the UAE in the field of education is required to obtain the requisite educational licences and permits from the relevant regulatory body(ies) before it can start its educational business activity.
In addition to the educational licences/permits, for an education provider to either operate in the UAE ‘mainland’ or in a free zone, it is mandatory to obtain a commercial licence from the Department of Economic Development (DED) of the relevant emirate (for operating in ‘mainland’) or from the relevant free zone authority as the case may be.
What is the result of this? Imagine the following:
- You are a prop registered in the UAE
- You go to a bank and say ‘i am an education provider registered in the UAE’
- ‘Great,’ says the bank. ‘Please can we see your approvals from the KHDA?’
- “No” you say and walk suspiciously out of the room
Alternatively
- You are a prop registered in the UAE
- You go to a bank and say ‘i am an education provider registered in the UAE’
- ‘Great,’ says the bank. ‘Please can we see your approvals from the KHDA?’
- “No” you say, “I’m actually a financial services business.”
- “Ok,” says the bank, “please can we see your financial license please?”
- “…no?” you say, and then walk suspiciously out of the room
I have no idea if this happens but I hope it does because it reminds me of that Simpsons episode where Homer writes a letter to Mr Burns, then Bart posts it, and they try to get it back from the post office.
But what is actually going on here? It seems possible that by saying you are an educational company and you register in Dubai, then you may inadvertently get hit with problems from your bank and payments providers.
Ultimately I would imagine most UAE companies don’t take local customers because they don’t want to shit where they eat. But it’s also possible that being registered there AND taking local customers also causes them banking and payment problems. And no one wants to deal with that shit.
