Introduction:

The Federal Decree-Law No. 14/2018 on the Central Bank and the Organisation of Financial Institutions and Activities, along with its recent amendments outlined in Federal Decree-Law No. 54/2023, has introduced significant changes impacting both investors and banks. Among these amendments are revisions to key definitions and regulations, as well as the introduction of new provisions aimed at enhancing customer protection and financial infrastructure. Understanding and adapting to these changes present various challenges for investors in the banking sector.

Revisions to Definitions:

One notable change is the redefinition of terms such as Transfer Order and Currency. According to the amended law, a Transfer Order now includes a broader range of instructions within the financial infrastructure system, encompassing fund transfers, securities settlements, and obligations release. Similarly, the definition of Currency now includes digital currency alongside traditional banknotes and coins.

Account Opening and Financial Balances:

Amendments to Article 42 grant the Central Bank the authority to open and maintain various types of accounts, including accounts for licensed financial institutions and monetary authorities. Moreover, the Central Bank may now hold digital currency financial balances, subject to specified regulations and controls.

Enhanced Customer Protection:

Chapter 6 of the UAE banking law emphasizes customer protection, particularly in Article 120 regarding the confidentiality of banking and credit information. It mandates that all data concerning customers' accounts, deposits, and transactions with Licensed Financial Institutions remain confidential and cannot be disclosed without written permission, except as permitted by law. This confidentiality extends even after the business relationship ends and applies to all individuals with access to such information. The Central Bank is tasked with regulating the exchange of banking and credit information, ensuring compliance with legal and regulatory requirements. Exceptions include disclosures required by legal authorities, duties of auditors, and obligations under commercial law, including combating money laundering and terrorist financing.

Furthermore, Article 121 outlines measures to further protect customers' interests. It mandates the Central Bank to establish comprehensive regulations for the nature of financial services and products provided by Licensed Financial Institutions. Moreover, the establishment of a specialized unit addresses customer complaints.

Introduction of Article 121 bis:

Guarantees of Credit Facilities: A significant addition is Article 121 bis, which mandates licensed financial institutions to obtain sufficient guarantees for credit facilities provided to customers. Failure to comply may result in legal consequences, including the rejection of claims or lawsuits related to credit facilities.

Financial Infrastructure and Payment Operations:

Article 124 outlines regulations on financial infrastructure, including the establishment of clearing and settlement systems and retail payment operations. The Central Bank holds exclusive authority over electronic banking operations and the regulation of retail payment systems.

Implications and Challenges:

These amendments signify a paradigm shift in the UAE banking landscape, necessitating comprehensive understanding and compliance from investors and banks alike. Challenges include adapting to revised definitions, ensuring compliance with enhanced customer protection regulations, and navigating the complexities of financial infrastructure and payment operations.

Enforcement Measures and Penalties:

The revised Article 137 of the UAE banking law empowers the Central Bank to enforce penalties and measures in response to violations by Licensed Financial Institutions or Authorized Individuals. These measures include warnings, remedial actions, restrictions on operations, fines, and license withdrawals, among others. Additionally, the article imposes fines such as:

• Imposing a financial fine of (400) basis points above the usual base interest rate of the Central Bank for any shortfall in the Mandatory Reserve.
• Imposing a fine of one to ten times the value of the illicit enrichment obtained unlawfully by the violating Licensed Financial Institution.
• Imposing a financial fine against the violating Licensed Financial Institution of not more than AED two hundred million (200,000,000).
• Imposing a fine against the violating Authorized Individual of not less than AED 100,000 and up to AED 2,000,000.

In all cases, the violator may be notified of the decision within 15 business days of its issuance, including information on the decision's content, reasons, effective date, and the right to appeal to the Grievances and Appeals Committee.

Conclusion:

While the amendments aim to strengthen the banking sector and protect investors' interests, they also present challenges in implementation and compliance. Navigating these new rules requires proactive measures, including robust risk management strategies and ongoing regulatory compliance efforts.