Sarwa Digital Wealth Faces $390k in Fines from DFSA and FSRA

In a shocking turn of events, Sarwa Digital Wealth, the UAE-based robo-advisory startup, has been hit with a combined fine of $390,000 (1.43 million AED) by the Dubai Financial Services Authority (DFSA) and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM). The fines were imposed for making a sale offer of securities to the public without an approved prospectus, which is a violation of the Markets Law.

DFSA and FSRA Impose Fines on Sarwa Digital Wealth

The DFSA, the regulatory authority of the Dubai International Financial Center (DIFC), imposed a fine of Dh701,815 ($191,100) on Sarwa Digital Wealth Ltd., registered in DIFC, for breaching the Markets Law. Similarly, the FSRA of ADGM imposed a financial penalty of Dh449,881 ($122,500) on Sarwa Digital Wealth (Capital) Ltd, an FSRA licensed firm in ADGM, for the same offense.

Sarwa Digital Wealth’s Offer Details and Mitigating Circumstances

Sarwa Digital Wealth (BVI) Ltd., the parent company of Sarwa DIFC and Sarwa ADGM, sent an email offering the sale of shares to nearly 100,000 users. This resulted in $2 million in commitments from over 150 potential investors, which was held in an escrow account.

The penalty on Sarwa DIFC was initially set at Dh1.43 million ($390,000) but was reduced following mitigation and settlement discounts. The mitigating circumstances were:

• Sarwa DIFC promptly halted the share sale and returned all monies to investors upon being advised by DFSA of the potential law violation.
• A related Sarwa entity is also being fined by ADGM’s FSRA.

DFSA’s Findings and the Importance of Regulatory Compliance

The DFSA found that Sarwa DIFC:

1. Withheld financial information that would have been included in an approved prospectus.
2. Provided positive metrics that gave investors a misleading impression about the financial performance and position of Sarwa DIFC and Sarwa ADGM.

This case highlights the importance of regulatory compliance for fintech startups operating in the UAE. Startups must navigate a complex web of regulations to ensure compliance with local and international laws, and failure to do so can result in severe consequences.

Coordinated Action by DFSA and FSRA

The DFSA and FSRA of ADGM collaborated to make their investigations more efficient by:

• Conducting joint communications with Sarwa
• Holding joint interviews with Sarwa staff and others
• Sharing common information requests
• Exchanging intelligence and findings

This collaborative approach sends a strong message to the market that violations will not be tolerated, regardless of the jurisdiction in which they occur.

The Future of Robo-Advisory in the UAE

Despite this setback, the robo-advisory sector in the UAE continues to show promise. With a growing demand for accessible and affordable investment solutions, startups like Sarwa have the potential to revolutionize the way individuals manage their wealth.

However, as the industry matures, it is crucial that players in this space prioritize regulatory compliance to ensure the long-term sustainability and growth of the sector.

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Conclusion

The fines imposed on Sarwa Digital Wealth serve as a wake-up call for startups operating in the financial sector. By taking proactive steps to ensure regulatory compliance and maintaining open lines of communication with authorities, startups can avoid costly missteps and focus on building innovative solutions that benefit investors and the broader economy.

As the UAE continues to position itself as a global hub for fintech innovation, it is essential that startups, regulators, and investors work together to create a robust and compliant ecosystem that fosters growth while protecting the interests of all stakeholders.