The UAE government has issued a Federal Decree Law regarding the Central Bank, and the regulation of financial institutions, including insurance companies.
The Federal Decree Law is part of the UAE’s continuous efforts to streamline the legislative and supervisory frameworks of the financial sector, enhance its stability and competitiveness and align the UAE’s financial ecosystem with the highest international standards, according to a statement by the National Media Office. It is set to strengthen the Central Bank’s independence and vital role in ensuring financial and monetary stability.
The Law defines the principal functions of the Central Bank of the UAE (CBUAE), mainly to establish and implement monetary policy, organise and supervise licensed financial activities in line with international standards, and issue appropriate regulations and standards to ensure prudent and effective financial practices.
The CBUAE is also tasked with managing foreign reserves to cover the monetary base, supporting sustainable financing practices while integrating governance principles, monitoring and analysing regulatory risks, and developing and overseeing the infrastructure of financial markets.
Customer protection
In terms of customer protection and financial inclusion, the Law maintains that licensed financial institutions shall provide all community members with access to proper banking and financial services, in line with digital transformation and financial service innovation.
It establishes frameworks for the launch of national awareness campaigns, in collaboration with the financial sector and community outreach entities.
The Law also enhances the system of consumer protection and dispute resolution by unifying the complaints process for customers of banks and insurance companies under the independent entity Sanadak, responsible for receiving and settling complaints. It also provides for the establishment of specialised judicial committees to adjudicate disputes arising from financial activities, with the committees' decisions being final and enforceable against licensed financial institutions for amounts up to AED100,000 ($27,230).
Financial crises
The Federal Decree Law outlines proactive measures for early intervention to address any signs of financial deterioration of a licensed institution to ensure financial stability and customer protection.
These measures include implementing recovery plans, imposing additional capital and liquidity requirements, making changes to the concerned institution’s business strategy, organisational and operational structures, appoint an interim committee or directly takeover the management of the institution, take steps for the merger, acquisition or liquidation of the concerned institution if necessary, and apply special measures on insurance companies failing to take the steps needed to rectify their position.
According to the Law, the CBUAE, as the “resolution authority”, plays a key role in managing financial crises. It has the power to remove and appoint the management of financial institutions, and recover monies from responsible persons.
It also has the power to appoint guardians tasked with managing the institution and its assets, terminate or close out contracts, transfer or sell assets and obligations, override rights of shareholders, restructure the capital, establish temporary entities to manage assets or continue providing key services, carry out an organised liquidation or bailout to ensure the continuity of critical functions.
In terms of administrative penalties, the Law stipulates raising the ceiling for administrative fines to be commensurate with the gravity of the violations and the volume of transactions. It allows the Central Bank to impose a proportional fine not exceeding 10 times the value of the violation or unjust enrichment.