Regulations Governing the Banking Sector in the UAE

Planning on applying for a banking license in the UAE? Considering setting up a bank in the UAE? We strongly recommend that you take a closer look at the statutes and regulations governing the banking sector in the UAE. 

Regulatory Bodies and Policies

The banking sector in the UAE is governed by the following laws and regulations:

• Federal Act 14 “The Law on Banking Activities”;
• Federal Act 18 “The Business Code”;
• All kinds of regulations that the Central Bank issues on a regular basis.

The Central Bank is the main regulatory authority which is charged with supervising banking activities in the UAE. The only two banking institutions that it does not control include the DIFC (which is regulated by the Department of Financial Services) and the Global Market in Abu Dhabi (which is regulated by the Department for Control Over Financial Services).

Financial Operations Between Different Kinds of Subsidiaries

If you are considering registering an affiliate company in the UAE, you should know that at least 40% of its equity capital is owned by a bank. A bank can also exercise control over the company’s activities by having its representatives on its board of directors.

If you are thinking of applying for a banking licence in the UAE, you should bear in mind that under the ‘Law on Banking Activities’ such a bank is considered a legal entity. It also has the right to engage in a number of banking activities (including accepting deposits), as well as any licensed financial activities, such as:

• extending loans;
• providing mediation services;
• exchanging currencies;
• transmitting money.

Some of the most recent additions to its services include virtual banking, e-payments in retail networks and e-money. For more information about obtaining a money remittance license in the UAE or applying for a virtual currency operator license, please, contact our legal consultant who specializes in banking sector regulations.

After acquiring a license of a banking institution in the UAE, an entrepreneur can engage in all kinds of licensed financial activities specified in the «Law on Banking” and allowed by Sharia Islamic Law. 

Regulatory Challenges

Please, be advised that obtaining a license of an Islamic financial institution or registering a financial institution in the UAE requires you to comply with the respective regulations governing banking activities in the US.

How Do Consumers’ Rights Get Protected?

Even though the UAE abides by Federal Act  24 and a number of other consumer protection laws, they do not specifically address ‘banking institutions’. Given the fact that banking institutions get controlled by the Central Bank, it is highly improbable that they will have any impact on the sector of banking services.

As far as protecting the rights of consumers is concerned, there are no special laws or regulations. That said, consumers are perfectly entitled to file any kind of complaint against a bank with the Central Bank.  

Looking for legal advice regarding consumer protection laws in the UAE? Get in touch with IQ Decision UK and our consultants will provide you with any help you need! They can also help you with obtaining a license from the UAE’s Central Bank!

How do banks get supervised?

The Central Bank requires banks to periodically submit different kinds of reports. Also, it can  check their financial records and accounts whenever it feels necessary. Inspections like these get carried out once per year and are ordinarily undertaken on a large scale.

How Do Banking Laws Get Enforced?

There are all kinds of penalties for non-compliance with the Central Bank’s rules and regulations, including issuing a warning, imposing license restrictions and imposing fines.

Can the Government Acquire Banking Institutions?

Banking institutions can be acquired by the government (or a regulatory body) if it is in the best interests of their depositors. If a banking institution does not have enough liquid assets to honor its commitments or it exposes its depositors to a risk, the banking institution can be acquired by the government. Though it is a quite rare occurrence several of such acquisitions have been reported lately. 

Seeking legal advice pertaining to potential risks in the UAE’s banking sector? Contact our experts by filling out the submission form below!

Filing for Bankruptcy

For any monetary transaction to take place in the UAE, it needs to meet a requirement for a minimum amount of a contributed capital. If the contributed capital is insufficient, the deficit is to be met within a time period established by the regulatory body (in this case, the Central Bank). 

Please note that we consult our clients on matters pertaining to the restructuring of banking institutions’ assets in the UAE. 

 What happens if a bank is inadequately capitalized?

If a banking institution is inadequately capitalized, it is to eliminate this shortcoming within a time period prescribed by the Central Bank. Failure to do so may entail all kinds of negative consequences, including imposition of fines and stripping of a banking license.

What if a Bank Ends Up Being Insolvent?

Banking institutions in the UAE are registered as JSCs (which means that you can register a public JSC) or subsidiaries of non-domestic banking institutions. Other types of ownership include PLCs or LLCs. Currency exchange points or financial mediation services can be owned by sole proprietors or have any other legal status prescribed by the Central Bank.

A three-month minimum notice period is established for the banking institution to notify its clients of its insolvency. The notice is to state the name of the body charged with liquidating the banking institution and responsible for paying off all its debts.

Majority Stake

Please be aware that registering any company in the UAE means that 51% of its stocks is to be owned by UAE citizens or organizations entirely owned by UAE citizens. Moreover, no less than 60% of the stocks of financial companies are to be owned by UAE citizens or organizations entirely owned by UAE citizens.

Non-Domestic Owners

A non-domestic company may not purchase a banking institution incorporated in the UAE. 

Acquiring Ownership of a Banking Institution

Change of ownership or control over a banking institution is a rare occurrence in the UAE. The majority of the local banking institutions are owned by the government or ruling families of the respective emirates where they are based. In the event of a purchase, the Central Bank is to look into the identity of the buyer, their track record, any conflict of interests, as well as the goal and term of investments.