How to appoint an escrow agent in the UAE

What does an escrow agent actually do?

An escrow agent holds money that belongs to one party until an agreed event happens, then pays it to whoever the agreement says. The role is to hold and to pay. The agent represents neither side, takes no part in the negotiation, and forms no view on who is right if the parties fall out.

Every arrangement turns on three things: who holds the money, what has to happen before it moves, and who is entitled to instruct that it moves.

When you need one

You need one when money has to change hands before the parties trust each other to perform, and neither side is willing to hold it in the meantime.

The common situations are a share or business sale where part of the price is held back, a property purchase where the buyer must produce settled funds on the day of transfer, a settlement of a dispute where payment and release of claims must happen together, a capital raise where subscription money must be held until closing, and a distribution to several payees who must all be paid on the same terms.

The common thread is timing. One side must part with money before the other has performed, and the gap needs bridging.

Escrow as a regulated activity

Check the proposed provider’s legal entity and permitted activities on the relevant public register. Titanium Financial Ltd is authorised by the FSRA of ADGM for Providing Custody and Providing Money Services, which is recorded on our verified facts page.

What is regulated is the underlying work: holding money that belongs to someone else, and paying it out. A firm offering to act as escrow agent is authorised, if it is authorised at all, for those activities rather than for escrow as such. So the question to ask a provider is not whether it is licensed for escrow. It is which activities appear on its permission.

Who is allowed to hold your money

It depends on where the firm is regulated, and each of these regulators publishes a register you can check yourself.

Abu Dhabi Global Market. Two regulated activities matter. Providing Custody covers safeguarding and administering assets belonging to another person, and where the asset is money it supports holding client money in an account the firm maintains for its clients. The money services activity covers executing payment transactions, including receiving and transmitting funds, which is the outward leg. A firm may hold one, the other or both. A firm with both can receive, hold and pay out as one continuous process. A firm with only the payment activity can move money but is not authorised to hold it as custodian.

Dubai International Financial Centre. A separate jurisdiction with its own regulator, the Dubai Financial Services Authority, and its own register of authorised firms and the financial services each may provide, including Providing Custody. Authorisation in one financial free zone is not authorisation in the other.

Onshore UAE. The Central Bank licenses payment service providers under the Retail Payment Services and Card Schemes Regulation, across four categories covering payment accounts, payment instruments, merchant acquiring, aggregation, fund transfer, payment initiation and account information. That regulation requires customer funds to be protected. A provider settling within twenty four hours must keep funds that will “not be commingled at any time with the funds of any Person other than the Retail Payment Service Users”, or ensure they are “insulated in the interest of the Retail Payment Service Users against the claims of other creditors”. A provider settling after twenty four hours must either “open a separate escrow account with a Bank”, or ensure funds are, in the Central Bank’s words, “covered by an insurance policy or by a bank guarantee”.

United Kingdom. The Financial Conduct Authority maintains the Financial Services Register, which it describes as “the official public record for all firms and individuals”. It shows whether a firm is authorised, what it may do, whether it was previously authorised, and its regulatory history.

A payment institution or electronic money institution there must, in the FCA’s words, “take steps to protect customer funds in the event of insolvency”. It does that in one of two ways: keeping relevant funds “segregated from all other funds they hold”, or covering them “by an insurance policy with an authorised insurer or a comparable guarantee”. The requirement sits in regulation 23 of the Payment Services Regulations 2017 and regulation 20 of the Electronic Money Regulations 2011, with the detail in chapters 10A and 15 of the Client Assets Sourcebook.

How do you check a provider is authorised?

Take the legal entity name from the draft agreement, not the brand on the website, and search it on the register of the regulator the agreement names. Titanium’s own entity, permission and register entry are set out on our regulatory and governance page.

A permission attaches to a legal company. Firms often trade under a name that does not appear on any register, so a search for the brand can return nothing while the company behind it is properly authorised, or return a company that is not the one you are contracting with.

The entry will show the legal name, the permission number, the status, the date of authorisation, and the activities on the permission with the date each was granted, together with any conditions, the approved individuals and any regulatory actions.

Three things to look for. That the entity on the register is the entity in your agreement. That the activities cover both holding and paying, not one of them. And that the status is active with no conditions that bear on your transaction.

If the entity does not appear, or the activities do not cover what the agreement asks the firm to do, that is the question to put before signing rather than after.

What segregation of client money means, and what to ask for

It means your money is held in a bank account designated as a client account, kept apart from the firm’s own operating money, and identified in its records as belonging to clients rather than to the firm.

Two things are worth asking for directly. First, the account bank’s acknowledgement that the account holds client money and that the bank has no right of set off against the firm’s own liabilities. That acknowledgement is the operative protection and it exists as a document. Second, a clear answer on what happens to client money if the firm itself fails. Segregation addresses commingling and the identification of each client’s entitlement. Insolvency treatment is a separate analysis that turns on the applicable regime and the account documentation, and a general assurance about segregation is not an answer to it.

Why a non-discretionary agent matters

A non-discretionary agent acts only on instructions or documents it can verify on their face. It does not decide whether a condition has been met, whether a warranty has been breached, whether a target has been achieved, or whether a claim is good.

That constraint does three useful things. A release that depends on the agent forming a view introduces a judgement the agent is not equipped to make, and a delay while it makes it, where a release that turns on two signatures or one identified document executes on receipt. An agreement that obliges the agent to decide gives the disappointed party a claim against the agent, which the agent will price and paper accordingly. And requiring every trigger to be objectively verifiable forces the parties to say what document proves the event. What a release condition has to look like to be operable is set out in our note on escrow release conditions.

Counsel drafting the release mechanics will want the fuller treatment in Escrow agent due diligence: five questions for transaction counsel.

What the escrow agreement should settle

Six things, and an agreement that leaves any of them open will cost time later.

What is held, in what currency, and in whose name the account stands. What event releases it, described so that it can be proved by a document rather than by an opinion. Who may give the release instruction, and whether their signature must be joined by the other side. What happens if the event never occurs, including where the money goes and when. What happens if the parties give conflicting instructions. And who bears the agent’s fees.

The counsel-side version of this list, written for the lawyer drafting it, is set out in Escrow agent due diligence: five questions for transaction counsel.

What you will be asked for before funds can be accepted

Identification for every party and for the people who control them, and evidence of where the money came from.

This is not optional and no authorised firm can waive it. Start onboarding early and assemble the requested documents before the planned funding date.

Expect also to provide the underlying transaction documents, because the agent has to see the arrangement it is being asked to administer.

What does it cost?

Fees vary with the structure, the number of parties and the release mechanics, so a provider should give you a clear, capped fee quotation for the mandate before you sign. Ask for it in writing, ask whether VAT is included, and settle in the agreement which side bears it.

Common questions

Can a firm be licensed for escrow in the UAE? Not in the way the question usually assumes. In the ADGM and the DIFC there is no permission called escrow. A firm holds permissions to carry on specified activities, such as Providing Custody and Providing Money Services, and the public register shows which it holds. Escrow accounts for off-plan property sales in Dubai are a separate regime with its own registration and supervision, and a provider describing that regime is not describing this one. Establish which is meant before treating a claim to be licensed as an answer.

Can a company hold escrow money without being regulated? Holding client money by way of business is a regulated activity in each of the jurisdictions above. If a provider is not on any register, ask on what basis it holds client funds and who supervises it.

Does the buyer or seller have to be in the UAE? Not necessarily, and this is one of the common reasons an escrow agent is appointed. What matters is that every party can be identified and onboarded.

Who chooses the escrow agent? Usually both sides together, because the agent acts for neither. Where only one party is instructing, ask the proposed agent whether it can contract on that basis. An agent proposed by one side alone is in any event a point the other side is entitled to raise.

What happens if the deal falls over? The agreement should already say. That is the fourth of the six points above, and it is the one most often left blank.

Titanium Financial Ltd, trading as Titanium Escrow, ADGM registration number 000003948, is authorised and regulated by the Financial Services Regulatory Authority of the Abu Dhabi Global Market under Financial Services Permission number 200010, for Providing Custody and Providing Money Services. Both are dated 26 November 2020 and can be verified on the ADGM public register.

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