Understanding Financial Regulatory Investigations in the UAE
Banking & Finance / UAE
Arina Gidwani Senior Associate,Banking & Finance
Amelito Mutuc IITrainee Solicitor,Banking & Finance
In the UAE’s dynamic financial landscape, staying ahead of the regulatory curve is essential in order to build a successful and sustainable presence in this market. This article explores the role of the various financial services regulators in the UAE in the context of regulatory investigations.
The CBUAE, with its role in managing banks, financial intermediaries, and payment systems across the UAE, is governed by Federal Law No.14 of 2018 Regarding the Central Bank & Organization of Licensed Financial Institutions and Activities (the “UAE Banking Law”).
The CBUAE is empowered to conduct investigations into financial irregularities, fraud, or violations of banking laws.[1] Upon detecting breaches of the law, the CBUAE may take remedial actions such as operational restrictions, mandates for immediate corrective measures, appointment of specialists to oversee financial operations, and any additional measures deemed necessary. Certain serious offenses (such as the unlawful issue of currency) can lead to severe penalties, including imprisonment for up to twenty years with a fine of up to AED 100,000,000. For less severe offenses, a caution or a fine ranging between AED 10,000 to AED 10,000,000 may be issued and, depending on the severity of the case, may include imprisonment for up to two years.
It is possible to file an appeal in relation to a CBUAE decision relating to a violation. The Grievance and Appeal Committee has exclusive jurisdiction to hear appeals against decisions made by the CBUAE. In its capacity, the committee can mandate individuals (and third party experts) to provide evidence or testimony, including under oath. The appeal process is similar to the UAE court process commencing with the filing of the appeal, typically within thirty days of the decision, hearings of relevant testimony and issuance of a final decision.
The CBUAE continues to take a firm stance on compliance with anti-money laundering (“AML”) provisions in the UAE related to breaches of AML regulation with a number of banks being heavily fined. In some circumstances, companies like exchange houses have also had their licenses revoked for non-compliance.
SCA operates pursuant to the regulatory framework established by Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and Market (the “SCA Regulations”) and The Chairman of the Authority’s Board of Directors’ Decision No. (13/Chairman) of 2021 on the Regulations Manual of the Financial Activities and Status Regularization Mechanisms Rule Book, as amended from time to time (the “Rulebook”). SCA is empowered to conduct regulatory investigations to confirm compliance with applicable laws and regulations or in response to a complaint.
The penalties for violations can range from warnings and suspension to removal from the register to safeguard investor interest. Serious offenses, such as breaching confidentiality (or the exploitation of the same), or engaging in fraudulent activities, can result in imprisonment ranging from three months to three years and/or a fine up to AED 1,000,000, depending on the seriousness of the offense. Similar to the CBUAE, SCA also allows for appeals to be submitted to its Enforcement Department and must be filed within thirty days of the decision that is to be appealed.
Established under Law No. 4 of 2022 Regulating Virtual Assets in the Emirate of Dubai (the “Virtual Assets Law”), VARA regulates virtual assets within the emirate of Dubai. One of VARA’s primary objectives is the regulation of Virtual Asset Service Providers (“VASPs”).
Under the Virtual Assets Law, where the Board of Directors of VARA have determined that a violation of the Virtual Assets Law or any of its rulebooks by a VASP has occurred, violators may be subject to fines and, in addition, have their permits suspended (for a period of up to six months) or revoked. Where a permit is revoked, VARA will coordinate with the relevant commercial licensing authorities to subsequently cancel the business license.
VARA employees may also be empowered in a law enforcement capacity to record the acts committed in breach of the Virtual Assets Law if nominated pursuant to a resolution of the Director General of the DWTC Authority. Such employees may inspect the VASPs, and persons authorised by VARA to conduct the activities or provide the services related to virtual assets, access any records or documents in their possession, issue the necessary violation reports; and where necessary, seek the assistance of police personnel.
In terms of appeals, affected parties can submit a written grievance to the VARA Grievance Committee (the “Committee”) within thirty days of notification of the contested decision.[2] The Committee, typically comprising of at least three members, will review the appeal and issue a final decision within fifteen days of receiving the submission. The decision issued by the Committee is final and may be published as an enforcement notice on the VARA website.
The DFSA is the financial regulatory authority of the Dubai International Financial Centre (DIFC) pursuant to DIFC Law No. 1 of 2004, as amended (the “DIFC Regulatory Law”). The DFSA is empowered to investigate any suspected violations. The DFSA is also authorised to enter business premises during normal hours, require the provision of specific information, request individuals to attend interviews and administer oaths. Additionally, a third party may be appointed for necessary assistance and individuals are entitled to legal representation. Subject to certain limitations, information or documents obtained through these investigations are admissible in legal proceedings.
Where the DFSA considers that a person has contravened the DIFC Regulatory Law (or any such regulation administered by the DFSA), the DFSA may impose a fine, censure, direct the remedy of the contravention and/or require compensation of an aggrieved party.[3] It should be noted that there is no cap on fines and these are set by the DFSA in its sole discretion.
Appeals on DFSA decisions may be referred to the Financial Markets Tribunal. To commence an appeal, a formal written notice should be submitted to the committee. If accepted, a sub-committee is convened to review evidence, hear testimonies, and issue orders as necessary. Consequently, the committee may direct DFSA on appropriate actions and may require the appellant to cover related costs, enforceable through legal means.
The FRSA, established under Abu Dhabi Global Market’s (“ADGM”) Financial Service and Markets Regulation 2015 (the “FSMR”), is the financial regulatory authority within the ADGM. The FSMR authorises the FSRA to commission inquiries into suspected breaches of the FSMR (or any other rules issued by the FSRA) and empowers them to appoint investigators who may conduct the investigation on its behalf. The FSRA may investigate the nature, conduct, or state of entities of an authorised person, recognised bodies, or remote bodies and may raise reasonable requests to investigate the ownership and control or any other aspect of the business. If the FSRA reasonably suspects that a regulated entity has breached the FSMR (or any other rules) it, or an appointed investigator, will issue a written notice to the suspected party. Similar to the DFSA, appointed investigators may be permitted to enter the business premises to inspect and/or copy any relevant documents, conduct interviews, and administer oaths.
If a contravention to the regulations is found, the party may be given a warning or face more significant disciplinary measures, including financial penalties and/or public censure.[4] The amount for financial penalties is determined on a case-by-case basis and public censure is generally exercised where there is incentive for public deterrence or a serious violation.
On conclusion of an investigation, the FSRA will issue a notice of decision which will specify the reasons for their decision, the date of effect, and the person’s right to seek a review by the Appeals Panel. The affected party may refer to the Appeals Panel for a full merits review and must apply for such within thirty days.[5] Following the appeal process, a final notice will be issued. Decisions made by the Appeals Panel may only be reviewed on the basis that such decision was either wrong in law or in excess of the Appeal Panel’s jurisdiction.
In summary, conducting regulated activities in the financial services space in the absence of the appropriate licensing, acting beyond the scope of a licence or otherwise in breach of regulatory requirements leaves an entity vulnerable to investigation or enforcement action by the relevant financial regulator. It is accordingly imperative to stay abreast of applicable laws and regulations on a proactive basis to ensure compliance.
At Al Tamimi & Company, we have extensive knowledge and expertise in the field of regulatory investigations. Our Banking and Finance team have advised on various regulatory matters as well as assisted clients who have been subject to complex regulatory investigations. As a full-service law firm, we are uniquely positioned to address regulatory issues across jurisdictions to offer a seamless and high-quality service to our clients.
[1] Articles 107 and 111 the UAE Banking Law
[2] Article 22 of the Virtual Assets Law
[3] Article 90 of the DIFC Regulatory Law
[4] Article 230 of the FSMR
[5] Article 225 of the FSMR
For further information,please contact Arina Gidwani and Amelito Mutuc II.
Published in December 2024
