Financial Free Zone
A financial free zone is a defined area within a country where financial services operate under a separate legal and regulatory framework, often with its own civil and commercial law, courts and financial regulator, while the host country's criminal law still applies.
Also called: financial free zone · international financial centre · special financial zone · DIFC-style zone
The model is most developed in the United Arab Emirates. A constitutional amendment and Federal Law No. 8 of 2004 allowed financial free zones to be created in any emirate and exempted them from federal civil and commercial laws, though UAE criminal law continues to apply. The Dubai International Financial Centre (DIFC) was set up under that framework, with its own body of civil and commercial law based largely on common law, English-language common-law courts, and an independent regulator, the Dubai Financial Services Authority. Abu Dhabi Global Market is a second UAE zone built on the same idea.
A financial district is not the same thing. The City of London is a local authority area: the City of London Corporation runs local services and promotes the financial sector, but firms there are governed by UK law and regulated by the FCA and the PRA like firms anywhere else in the country.
For a licensing practitioner, a free zone is a separate jurisdiction for authorisation purposes. A DIFC licence does not authorise a firm to serve customers elsewhere in the UAE, and an onshore licence does not cover activity in the zone. Firms choose a zone for its law, courts and regulator, but they still need bank accounts, which depend on the banks' own risk appetite, and they must still satisfy any substance and anti-money laundering requirements that apply.
In practice
The scope of each zone's legal independence is set by the host country's law and differs from zone to zone. Check what the zone's licence actually permits, and where, before relying on it.
Learn more on Money Wiki
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Commonly confused with
| Term | How it differs |
|---|---|
| Offshore financial centre | An offshore financial centre is a jurisdiction whose financial sector mainly serves non-residents. A financial free zone is a carved-out area inside a country, which may serve residents and non-residents alike. |
See also
- Dubai Financial Services AuthorityThe Dubai Financial Services Authority is the independent regulator of financial services conducted in or from the Dubai International Financial Centre. It authorises, supervises and enforces against firms and individuals in the zone, separately from the UAE's onshore regulators.
- Offshore Financial CentreAn offshore financial centre is a jurisdiction whose financial institutions do most of their business with non-residents, so that its external assets and liabilities are large relative to its own economy. Typical features have included low or zero tax and specialised company law.
- Prudential Regulation AuthorityThe Prudential Regulation Authority is the part of the Bank of England that regulates and supervises the safety and soundness of UK banks, building societies, credit unions, insurers and major investment firms, about 1,300 firms in all.
- Financial Conduct AuthorityThe Financial Conduct Authority is the United Kingdom’s conduct regulator for financial services. It decides whether a payments or e-money firm may operate in the UK, authorizes or registers it, and supervises how it behaves afterwards.
- PassportingPassporting is the mechanism by which a firm authorized in one EEA state may provide its services in the other EEA states without seeking separate authorization in each one. The home state regulator continues to supervise the firm throughout.