Article 110 of the Constitution provides for the process of promulgation of laws. The process of law-making in UAE  follows the following procedure;

The Cabinet prepares a bill and submits it to the Federal National Council – FNC (Arabic) which may pass, amend or reject them. The Cabinet then submits the bill to the President of the Federation for his approval and presentation to the Supreme Council for ratification. The President of the Federation signs the bill after ratification by the Supreme Council and authorises its promulgation. Bills or draft laws produced by the Cabinet will not have a legal impact until they are approved by the President and ratified by the Supreme Council. If the FNC enters any amendment to the bill that is not acceptable to the President of the Federation or the Supreme Council, or if the FNC rejects the bill, the President or the Supreme Council may return it to the FNC or the President may promulgate the law after ratification by the Supreme Council.

Such laws shall come into force one month after the date of their publication in the official Gazette unless another date is specified in the said law. Article 112 provides that laws apply only from the date they come into force without retrospective effect. When necessary and in matters other than criminal ones, the law may provide otherwise

Bills or draft laws acquire legal force only once they have been approved by the President and confirmed by the Supreme Council. When there is an urgent need to publish a law between Supreme Council sessions, the President, in consultation with the Cabinet, may issue the required legislation in the form of decrees, which have the force of law. 

This article will detail the emergence of Banking Law UAE with the passing of Decree-Law No. 14 of 2018 and highlight Federal Law No. 23 of 2022  which amends Law No. 14 of 2018 (the Banking Law). 

The Federal Law No. (14) of 2018 governing the Central Bank of the UAE (UAECB) and Regulation of Financial Institutions and Activities (the “Law”) was issued replacing Federal Law Nos. (6) of 1985 addressing Islamic Banks, Financial Institutions, and Investment Companies, and Federal Law No. (10) of 1980 addressing the Central Bank, The Monetary System, and the Organization of Banking. The new rules are designed to protect the stability of the financial system and the currency, emphasizing the key objectives of the Central Bank of which the most important is to protect the stability of the financial system in the UAE, ensure prudent management of Central Bank foreign reserves and maintain the stability of the national currency within the monetary system. The Law provides for the establishment of a licensing committee under the Ministry of Finance with representatives from all regulators in the UAE to consider and decide on the regulatory rules applicable to emerging financial activities not captured under existing legislation by any regulatory in the UAE. 

The role of the licensing committee as described under the Law will provide a forum for assessing and qualifying emerging financial services and activities that might otherwise cause regulatory uncertainty to market participants and regulators alike. With a number of regulators with a legislative mandate in the UAE, it is not uncommon to have regulatory gaps or overlaps. In addition to spelling out specific licensing requirements for financial activities, the Law strengthens the Central Bank’s enforcement powers to impose a broad range of administrative, and financial sanctions and penalties on licensed financial institutions that violate this Law’s provisions. 

highlighted briefly below are the key provisions of the Law which are relevant to financial institutions in the UAE.

1.  Higher Shari’a AuthorityThis refers to the establishment of a Higher Shari’a Authority (‘Authority’) to replace the authority contemplated by the 2016 Cabinet Resolution. The Authority will, amongst others, impose regulations on Islamic financial institutions and perform a supervisory role over the internal Shari’a’s supervisory committees of such institutions. Islamic financial institutions will be responsible for the costs of the Authority.
2. Issuance of SecuritiesSecurities issued by the UAECB or the Government shall be subject to rules issued by the UAECB, including issues such as issuance, custody and trading, together with the appointment of primary dealers for such securities including those issued in the public sector. 
3. CurrencyReconfirmation that the UAECB is solely responsible for the issuance of currency in the UAE, which also includes any token.
4. Undertaking Financial Activities in UAEThe Law expands on previous provisions and confirms that no financial activities may be carried out in or from the UAE without a licence. In this respect, the UAECB has been given new powers to inspect the premises of any person suspected of carrying out financial activities in the UAE, as well as the ability to require any related information from that person. A new addition is that any promotion of financial activities or products may not be carried out in or from the UAE unless it is subject to the Law. The Law clarifies that promotion includes any communication aimed at inviting or offering a transaction or offering to conclude any agreement. The Law indicates that rules and regulations would be issued which will clarify applicability, prohibitions and exemptions. Such provisions arguably change the position of cross-border activities by non-UAE licenced institutions in the UAE, which may need to be reassessed.
5. Financial ActivitiesHelpfully, the financial activities subject to the Law and UAECB supervision have been listed, and range from the taking of deposits, provision of credit, currency exchange, payment services and other financial products. Interestingly, financial products include financial derivatives, bonds, sukuk and equities. The inclusion of digital and virtual banking licences is a positive move, and the arrangement and/or promotion of financial services is now an independent licenced activity.
6. LicencingThe Law sets out in greater detail the licencing requirements and processes while granting the UAECB broad discretion to control such licencing. It also states in detail the ability of the UAECB to impose conditions on any new or existing licences, and the circumstances in which licences may be suspended, withdrawn or revoked. While such circumstances are far-reaching and contain events that could be seen as minor, the historical approach of the UAECB should give financial institutions comfort that such powers would be exercised fairly and reasonably.
7. RegisterThe Law confirms the electronic register for all financial institutions to be maintained by the UAECB (‘Register’). Any amendment to the articles of a financial institution shall require the consent of the UAECB and only take effect once entered into the Register.
8. Legal Form and OwnershipBanks (excluding branches of foreign banks) must take the form of public joint stock companies, while other financial institutions must take the form of private joint stock companies or limited liability companies (as applicable). The minimum UAE ownership in banks has been increased to 60 per cent. 
9. Authorised IndividualsThe Law introduces the concept of authorised individuals performing designated functions, and imposing fit and proper conditions on all such individuals. While the UAECB may set rules and conditions in this regard and must approve all such individuals, the Law confirms that they include chief executive officers, senior managers, executives and anyone else carrying out a designated function (as defined by the UAECB).
10. Related PartiesRelated party transactions are dealt with in the Law, with quarterly reports required by the UAECB of all credit transactions with related parties. The UAECB has wide powers to act on such reports, including requiring provisioning against such facilities or prohibiting further facilities.
11. Non-banking Activities and Assets
    Subject to the exclusion granted to Islamic financial institutions, the prohibition on carrying out non-banking activities continues including in relation to the trading of goods, or ownership of property or shares. Exceptions continue to apply where they are received in settlement of a debt, however, interestingly the previous exception of owning property for the bank’s operations has been removed. Instead, it appears to have been replaced with a ratio to be stipulated by the UAECB. 
12. Bank Failure
    The Law introduces a framework for deposit-taking financial institutions to be developed by the UAECB, including triggers signalling the financial difficulties of such institutions. Under such a framework, the UAECB will have wide discretion to impose conditions, require additional capital, force or permit mergers, freeze assets, liquidate the institution or, effectively take over management of the institution (whether itself or through a committee).
13. Lending to the Board
    The Law reconfirms the previous clarification which was issued in 2015 by the UAECB, noting that the Commercial Companies Law does not apply, and financial institutions may lend to their board in accordance with directives issued by the UAECB. 
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14. Change of Control
    Controlling interests in any financial institution remains subject to the approval of the UAECB, as does the establishment of any additional branch or subsidiary inside or outside the UAE.
15. Governance
    The UAECB will establish a general framework for the governance of financial institutions. In a welcome development, an electronic rulebook is contemplated which will include all regulations, instructions and circulars.
16. Consumer Protection
    There is an increased impetus on consumer protection with several sections of the Law focusing on the protection of depositor interests, and expanding the remit of accessibility of financial services across all strata of society. The UAECB has been mandated to work with the Ministry of Finance to develop a deposit guarantee scheme.
17. Lawsuits
    The UAECB is given the right to intervene in any lawsuit filed involving a financial institution, with the UAECB to be notified of all such cases.
18. Confidentiality
    The Law reconfirms the confidentiality of all customer information, only to be disclosed with the prior written consent of the customer. The issuance of specific banking secrecy regulations is contemplated.
19. Grievances
    An independent Grievances and Appeals Committee is to be established, consisting of judges and experts. Such a committee shall be responsible for any appeals against decisions or actions by the UAECB.
20. Licencing Fees
    The UAECB has been newly vested with the discretion to charge for issuing licences and authorisations.
21. Period to comply
    Financial institutions are required, as necessary, to reconcile their positions to comply with the Law within the period stipulated by the UAECB.
22. Foreign Judgments
    One area which has caused issues for a number of financial institutions is the applicability of foreign judgments. In this respect, the Law confirms that foreign judgments shall apply in accordance with the applicable legal proceedings of effective laws in the UAE. This would appear to confirm the position commonly held that foreign judgments are not binding on UAE financial institutions until they are recognised in the UAE through the relevant legal process.

Decree No 23of 2022

The primary law governing the banking sector in the UAE was amended, with the amendments to come into force from 2 January 2023. Of particular interest to financial institutions are two amendments:

• Compound Interest

The existing Banking Law (Article 121(3)) provided for a restriction on the charging of interest on interest. Through the amendments the restriction will remain, however, clarification has been included to confirm the reference is to compound interest, and that in this respect any rules or regulations issued by the UAE Central Bank should be followed. It should be noted that the restriction was also referred to in the Consumer Protection Regulations issued by the UAE Central Bank, albeit in relation to consumers. The amendment, in particular reference to rules and regulations of the UAE Central Bank, is likely to be a response to the various questions which arose following the introduction of the Banking Law in 2018 and confirms the ability of the UAE Central Bank to decide on the scope and applicability of such restriction. This includes questions on the applicability to retail versus corporate customers, and also applicability to certain products and the way in which interest is calculated. 

• Obtaining Security

The amendments introduce the need for financial institutions to obtain ‘sufficient securities’ when lending to natural persons and sole proprietorships taking into account the relevant lending and the customers’ income and financial position. This follows the UAE Central Bank’s Notice No 3944 of 2021 on the same topic. Further, no application, suit or argument shall be accepted before the competent judicial authorities or arbitral tribunals may be filed by a licensed financial institution in the event that it did not obtain the required securities. The UAE Central Bank also reserves the power to impose administrative and financial penalties for non-compliance. 

The new enforcement powers granted to the Central Bank are balanced by the introduction of an independent committee, named “Grievances & Appeals Committee” to be established under the chairmanship of a court of appeal judge. The Committee shall have the sole and exclusive jurisdiction to decide on grievances and appeals against any decisions by the Central Bank related to licensing, authorization of individuals, and licensing and designation of financial infrastructure systems. With strengthened enforcement powers to impose a broad range of administrative, financial sanctions and penalties on licensed financial institutions that are in violation of the provisions of the Law, the UAE Central Bank will exercise effective control over the financial sector and market participants allowing for enhanced customer protection and regulatory oversights, which is in line with international best practices in financial regulatory ecosystems. 

*This article’s material should not be construed as legal advice. Hassan Al Reyami Attorneys and legal experts are happy to answer your questions during a 30-minute free legal consultation session that is being given to you if you are facing any issues pertaining to the following subject or have any other inquiries.