DOING BUSINESS IN THE UAE - A GUIDE TO BANKING LAW

DOING BUSINESS IN THE UAE – A GUIDE TO BANKING LAW

Strong relationships between companies and other commercial factors remain the key to successful business transactions in UAE. For this reason, the basic knowledge of UAE banking regulations is essential when deciding to do business in the UAE.

 

Firstly, it is important to note that the main regulatory provisions that govern the banking sector in the UAE is the UAE Federal Law No.10 of 1980 that establishes the structure and function of the Central Bank, the Monetary System and the Organisation of Banking (the Banking Law), UAE Federal Law No. 18 of 1993, as amended (the Commercial Code), UAE Federal Law No. 6 of 1985 concerning Islamic banks, financial establishments and investment companies (the Islamic banking law) and of course,
the various banking regulations, including the notices and resolutions issued by the board of governors of the UAE Central Bank.

The banking industry is governed mostly by the banking laws that establish the UAE Central Bank. These provisions cover the role of the UAE Central Bank as well as other banking matters such as maintaining gold and foreign exchange reserves, issuance of currency, monitoring UAE banking and managing the credit policies.

Furthermore, the Banking Law includes provisions related to the registration, licensing and operation of commercial banks across UAE; it also comprises details regarding the existence of financial institutions and investment banks.

Another primary regulation that contains essential provisions regarding the banking operations in the UAE is the Commercial Code. This regulation contains provisions on banking operations and it covers as well provisions regarding the opening of bank accounts, bank deposits, guaranties, documentary credits, loans, promissory notes and cheques. In addition to these regulations, the Islamic Banking Law emphasizes the establishment and operations of Islamic banks.

The various circulars, regulations, notices and resolutions issued by the UAE Central Bank deal with various aspects of banking including bank accounts, maintaining of certain reserve ratios, capital adequacy norms, measures to combat money laundering and reporting requirements to the UAE Central Bank.

It is also important to know that the UAE Central Bank is the primary regulatory authority responsible for overseeing banks, except in the Dubai International Financial Centre (DIFC), where the regulatory authority is the Dubai Financial Services Authority (DFSA) and in the Abu Dhabi Global Market (ADGM), where the regulatory authority is the Financial Services Regulatory Authority (FSRA).On a closer look, it can be observed that all these regulations have not been updated since 1980. However. Based on the most recent legislative changes, UAE banks are required to implement and integrate the International Financial Reporting Standards 9 (IFRS 9). Since January this year, it has been observed that this new regulation is affecting the mechanism through which credit losses are recognized. Therefore, the costs for compliance are increasing, which will potentially have an impact on the balance sheet of the banks.

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