The Central Bank of the UAE (CBUAE) on Sunday issued Small to Medium Sized Enterprises (SME) Market Conduct Regulation. Image Credit: Virendra Saklani/Gulf News

Dubai: The Central Bank of the UAE (CBUAE) on Sunday issued Small to Medium Sized Enterprises (SME) Market Conduct Regulation to promote best practices among licensed financial institutions (LFIs) when engaging with SMEs.

The objective of the regulation is to enhance SMEs’ access to financial products and services. CBUAE’s introduction of this regulation follows the launch of its new Financial Consumer Protection Regulatory Framework.

“SMEs play a vital role in the UAE’s economy. The UAE government has placed considerable emphasis on developing the SME ecosystem and removing obstacles for a transparent, entrepreneurial, and innovative SME sector in the UAE, which has good access to various financial sources,” said Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE.

Setting standards

The regulation advances the CBUAE regulatory agenda by setting standards of market conduct of LFIs; strengthens governance over the design, promotion and sale of financial products and services, and promotes responsible financing practices and appropriate disclosure of risks. In addition, it provides SMEs with access to timely and accurate information to make informed decisions, implements clear mechanisms for redress of complaints by SMEs, and requires appropriate debt counseling.

LFIs are required to ensure that the opening of a bank account for an SME should be completed within three business days, provided that LFIs undertake appropriate due diligence related to financial crime compliance and that SME presents a low risk of money laundering or terrorism financing.

The regulation also requires LFIs to establish an independent and effective complaints management function to ensure fairness, transparency, and neutrality in resolving complaints.

“The CBUAE aims to ensure that SMEs enjoy the highest business standard when interacting with licensed financial institutions, in line with our new consumer protection mandate. We are confident that this regulation will facilitate the provision of best-in-class products and services to SMEs,” said Alahmadi.

Specific requirements of Market Conduct when dealing with SMEs
- Monitor and uphold high ethical standards and practices when dealing with SME customers and avoid any conflicts of interest; prohibit and prevent abusive sales, marketing, and pricing practices.
- Take the necessary steps to ensure that SME customers understand the terms and conditions of financial products and services.
- Provide credit only in the amount that the SME customer can service.
- Disclose the reason for rejection of SME customers’ application for credit.
- Employ suitably qualified staff to deal with SME customers.
- Inform SME customers of the key characteristics of products and services, including risks, costs, fees, interest or profit rates, and locked terms.
- Ensure that all their authorised agents (commercial representatives of Licensed Financial Institution) comply with the CBUAE regulation.
- Provide impartial credit counseling services to their borrowers who face difficulties with servicing their debt;
- Incorporate and uphold Shari’ah principles when providing Islamic financial services.

Licensed financial institutions (LFIs) are also required to:
- Charge reasonable fees.
- Allow SME customers to easily switch their relationships between LFIs.
- Refrain from excessive pressure on SME customers in the collection of debts