Escrow agent due diligence: five questions for transaction counsel

Five practical questions arise before an escrow agent is appointed on a cross-border matter. The general guide, how to appoint an escrow agent in the UAE, covers the same ground for a non-specialist reader. Each affects the agreement, the onboarding timetable or the release process, and each is worth settling before funds move.

1. Under what authority is the money held?

Titanium Financial Ltd holds a Financial Services Permission from the Financial Services Regulatory Authority of Abu Dhabi Global Market for Providing Custody and Providing Money Services. The permission and the firm’s status are published on the ADGM public register.

Note the wording, because it matters in drafting. The permission is stated as Providing Custody and Providing Money Services, and that is the form to use. An agreement reciting the agent as the holder of a dedicated escrow permission is reciting something that does not exist in this jurisdiction.

2. How is client money held, and separated from the firm’s own?

Client money is held separately from the firm’s own money under the applicable client money arrangements, rather than as a matter of internal practice.

What happens on an insolvency is a different question. It turns on the applicable law and on the agreement, and it is one to put to the proposed agent and to your own advisers rather than to infer from the fact of separation.

3. Will the agent decide whether the conditions have been met?

No. The agent applies the release conditions recorded in the agreement. Where release is against a joint written instruction, it acts on the instruction. Where release is against a document, it checks that the document produced answers the description in the agreement. It does not assess whether a party has performed its obligations.

This has a practical consequence at drafting stage. The release condition has to be capable of being applied by someone who knows nothing about the commercial bargain. If a condition requires the agent to know what the parties intended, it is drafted wrongly.

4. How long does the arrangement take to put in place?

The agreement itself is short. Ask any proposed agent whether it works from a standard form, how much comment that form usually attracts, and whether it can contract with one side alone where only one party is instructing it. The timetable usually turns on onboarding the parties, which cannot start until the agent knows who they are.

The practical constraint is when the parties are identified rather than when the agreement is signed, because onboarding cannot begin before that.

5. What does the agent need from the parties?

The initial information covers the following points. The documents required depend on the parties, their jurisdictions and their roles.

• Corporate and identification documents for each party, and for the ultimate beneficial owners.
• The amount to be held and the currency.
• The number of deposits in and the number of releases out.
• Whether any manager’s cheques will be issued or deposited, and the mechanics if so.
• Whether release is against a joint written instruction or against a defined document or other objective condition.
• Where the money is going on release. A single account is one instruction. A distribution to a seller register is a different exercise with its own timetable.

With those items we can revert with a fee quote.

Where the parties fall out

The agreement should say what the agent does when it receives conflicting instructions, and the answer is that it holds, notifies both parties, and continues to hold until it receives a joint instruction or a determination it may act on in the form the agreement specifies. The agent does not take a side, and the agreement should say so expressly.

What the agent does not do

Titanium does not determine whether a condition precedent has been satisfied, does not adjudicate between the parties, and does not provide legal, tax or investment advice. It acts on valid authorised instructions, or on documentary evidence expressly specified in the agreement.

Common questions

What permission does Titanium hold?

A Financial Services Permission granted by the FSRA for Providing Custody and Providing Money Services, FSP number 200010. The regime contains no separate escrow permission, so no firm holds one.

Who decides whether a release condition has been met?

The parties, through the mechanism recorded in the agreement. Titanium applies that mechanism and forms no view on whether a party has performed its obligations.

How quickly can an account be opened?

Accounts are typically available within one to two business days following KYC clearance and documentation.

Can Titanium act where the parties are outside the UAE?

Yes. Titanium is available to parties with or without an ADGM or UAE presence, subject to onboarding and applicable law.