UAE Law and Practice Contributed by: Ildar Yuvakaev, Ruslan Akhmetov, Olga Serova and Daiana Ubushaeva, Consigliere Group
6.3 Fiduciary Regulation Common Law, Civil Law and Sharia Law
with due care and in the foundation’s best interests under its charter and investment policy. Professional fiduciaries face a regulatory overlay: DIFC/ADGM trust service providers and asset managers must be DFSA/ FSRA-licensed and meet conduct-of-business stand - ards (suitability, asset segregation, risk disclosure), with the SCA performing an equivalent onshore role for licensed managers and, increasingly, for registered trustees – so investment conduct is examined by a regulator, not just by beneficiaries, adding compe - tence duties. Three distinct legal mechanisms sustain prudence: • default duties, including a default duty to diversify, applying automatically unless the instrument varies them; • liability, since beneficiaries can sue in the DIFC/ ADGM courts for surcharge, account or removal, with exculpation never excusing fraud, wilful mis - conduct or (in the DIFC) gross negligence, leaving a floor of accountability that always remains; and • supervision by courts, waqf authorities or financial regulators. The freedom to contract out – retaining a concentrat - ed family business, disapplying diversification, anti- Bartlett clauses – is deliberate, and redirects rather than removes the good-faith and care obligations 6.4 Fiduciary Investment The UAE does not prescribe a single investment the - ory across all jurisdictions. The DIFC and ADGM trust frameworks broadly reflect modern portfolio theory principles, with prudence assessed by reference to the portfolio as a whole. Accordingly, a concentrated or higher-risk holding may be acceptable where it fits the overall investment strategy. Trustees are generally expected to diversify, unless the trust instrument or the purposes of the trust jus - tify retaining such assets, which is common in fam - ily business structures. The onshore UAE framework does not generally impose a statutory diversification duty, relying instead on prudent asset management and capital preservation.
In the UAE, fiduciary investment standards are most developed in the common-law free zones. DIFC trus - tees are governed by DIFC Trust Law No 4 of 2018, requiring them to act honestly, in good faith and for proper purposes, and to exercise the care, diligence and skill of a prudent professional when investing another’s assets; the ADGM Trusts framework impos - es an equivalent prudent-investor obligation. Onshore, the Trust Law (Federal Decree-Law No 31 of 2023) requires trustees to manage property with the care of a “reasonable person”, act loyally, avoid conflicts, segregate assets and account to beneficiaries, under SCA and court supervision – though case law giving it content is still thin. Court-appointed guardians face a conservative, procedurally-driven custodial standard rather than an investment theory: court approval for major dispositions, inventories and periodic accounts simply block risky reinvestment. A waqf nazir (admin - istrator appointed to oversee a waqf ), under Federal Law No 5 of 2018 and the emirate waqf authorities, must preserve the endowed corpus through Sharia- compliant investment under supervisory oversight – again prudence enforced by supervision. Regulated entities Federal Decree-Law No 10 of 2025 (the UAE’s federal AML/CFT and counter-proliferation financing law) sets no separate prudent-investor rule, but shapes how fiduciaries handle assets: those qualifying as financial institutions, DNFBPs or virtual asset service provid - ers (VASPs) are “regulated entities” that must apply risk-based KYC, source-of-funds checks, and moni - toring and sanctions screening, and avoid criminal proceeds, sanctioned counterparties or unlicensed virtual-asset activity, risking personal and institutional liability. Cabinet Resolution No 134 of 2025, the law’s executive regulation, converts this into binding detail – risk-based due diligence, UBO identification, prolif - eration-financing duties, new DNFBP categories, and record-keeping/reporting duties shaping asset alloca - tion and counterparty choices. Foundation laws and rules For foundations, the DIFC Foundations Law No 3 of 2018 and ADGM Foundations Regulations 2017 make council members fiduciaries bound to act honestly,
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