The UAE Central Bank located on the Baynoonah street in Abu Dhabi. Image Credit: Gulf News archives

Dubai: The new Central Bank Law (Federal Law No. 14 of 2018), entrusts the Central Bank of UAE with the responsibility of licencing and regulation of all kinds of financial services activities in the UAE.

The law expands on previous provisions and confirms that no financial activities may be carried out in or from the UAE without a license.

“The law reconfirms the jurisdiction of the UAE Central Bank over banking activities in the UAE as the relevant licensing authority, which now also includes the activity of promoting financial products. It introduces more prescriptive licensing requirements and processes for financial institutions, both for existing and any new entrants,” said Jody Waugh, partner, Head of Banking & Finance, Al Tamimi & Company.

While the law gives a new set of powers to the central bank in setting conditions for issuance, cancellation and renewal of licences for financial services activities, it incorporates a long list of financial service activities — ranging from taking deposits, provision of credit, currency exchange, payment services and other financial products — that requires a licence from the central bank within the UAE.

The UAE Central Bank retains discretion in relation to licensing matters, including the ability to impose conditions on any new or existing licenses, and the circumstances in which licenses may be suspended, withdrawn or revoked. The licensing regime has seen new activities of virtual banking and promotion added, together with powers of the Central Bank to effectively place a bank under administration should it face financial difficulties. Interestingly, the law introduces a grievance and appeals committee which will be able to consider decisions of the Central Bank on licensing matters,” said Waugh.

The regulation of any financial services that is not enlisted in the new law will be decided by a newly created technical committee named ‘Financial Activities Committee’. This committee will be established in the Ministry of Finance by a Cabinet resolution, chaired by the Ministry and include in its membership a representative of each regulatory authority in the UAE.

Issuing clarity

The law sets out clear guidelines for financial institutions regarding promotions, advertising and communication regarding offers of financial services. Promotion of any of the licensed financial activities and financial products may only be carried on in or from within the state, in accordance with the provisions of the new law, and the rules and regulations issued in implementation thereof. The promotion referred to in this item shall mean any form of communication, by any means, aimed at inviting or offering to enter into any transaction, or offering to conclude any agreement related to any of the licensed financial activities.

The law has mandated the board of directors of the central bank to issue rules, regulations, standards and directives relating to the prohibition to carry on financial activities without prior licensing and to the prohibition to promote licensed financial activities and financial products. The central bank has discretionary powers to exempt any activities or practices, or exempt the prohibition to carry on or promote licensed financial activities.

The law also brings clarity in the use of term bank or ‘masraf’ in any language and restricts entities from misleading the public on the nature of their business. To prevent the misuse of the term, the law sets out to establish an electronic register named ‘Register of Licensed Financial Institutions’. The register will be created in the Central Bank, to which names of licensed financial institutions and all their data and any amendments thereto, shall be entered. This register will be published on the Central Bank’s official website.

The law makes it mandatory for all licensed financial institution to join the central bank registry, before commencing any licensed financial activity. Proceeds of licensing and entry to the register fees shall be deposited in a special account with the Central Bank.

 

Highlights

— The law reconfirms the jurisdiction of the UAE Central Bank over banking activities in the UAE.

— It gives a new set of powers to the central bank in setting conditions for issuance, cancellation and renewal of licences.

— The law sets out clear guidelines for financial institutions regarding promotions, advertising and communication.