Unlicensed Financial Advisers Fleecing UAE Investors

Unregulated financial advisers are fleecing investors in the United Arab Emirates (UAE), according to financial watchdogs.

As a result, financial regulator the Securities and Commodities Authority (SCA) is warning investors to check out their advisers before handing over any cash.

Investors can search the credentials of their advisers online through the SCA web site.

In a statement, the SCA has warned investors that they could lose their cash if dealing with unauthorised financial advisers as they have no legal rights under money protection schemes.

The warning follows a flood of complaints from investors about shady deals, unfair fees and investment opportunities that do not exist.

Many of the investors are expats unfamiliar with financial matters in the UAE.

“Investors should only deal with financial advisers and analysts licensed by the SCA for their own protection,” said an SCA spokesman.

Startup company risks

The SCA has also recently run a forum to help investors putting money into risky ventures like startup companies in the UAE.

Financial experts told investors that taking an equity stake in a new company is riskier than investing in an established business.

Two points were highlighted:

  • Startups have no business history for due diligence scrutiny, so investors cannot look at past performance as an indicator of whether the company has a market or the managers can deliver to targets
  • Figures are based on assumptions that may not be realistic and if an investor is not an expert in the business sector, they may not fully realise the risk involved in backing a startup with their cash

The forum heard that Dubai has a booming economy with a high number of startup business looking for funding from outside investors.

No compensation

However, a large number of these businesses fail in the early years and many investors have been disappointed that their money was not spent on growing the business, but funding lavish offices and too many staff.

The forum cautioned investors in startups that just because the SCA has sanctioned a share issue does not mean the company has been approved or endorsed in any way and that investors still need to undertake their own due diligence.

“Issuing a prospectus does not mean the information or business proposals inside are guaranteed by the SCA,” said an SCA spokesman.

“Investors still carry the risk and have no call on the SCA for compensation if the company fails.”

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