Regulatory Framework for Offering Structured Products in the UAE: Recent Updates
Financial Services Focus
Sarah El SerafySenior Counsel,Banking & Finance
The regulatory landscape for offering structured products in the UAE has undergone significant changes in the recent years. This article provides an overview of the regulatory framework governing structured products in the UAE, highlighting the roles of the Securities and Commodities Authority (SCA) and the Central Bank, and explaining the recent updates to the 'No Objection Certificate' (NOC) requirements for Licensed Financial Institutions (LFIs).
Securities and Commodities Authority (SCA) SCA has a broad jurisdiction over the regulation of financial products, investments, and services in the UAE. The SCA Rulebook, effective since May 2021, outlines the licensing and regulatory requirements for entities offering financial products in the UAE including financial institutions licenced by the Central Bank.
Central Bank The Central Bank regulates the compliance of offering of structured products by LFIs through various notices and guidelines as follows:
Notice 3803/2009: This notice requires banks to submit a written request to the Central Bank for approval before selling structured products to customers (retail customers (including high net worth individuals).
2023 Guideline on New/Updated Financial Product and/or Service: This guideline mandates that Central Bank licenced LFIs obtain a NOC from the Central Bank before launching structured products, particularly for retail clients. It also outlines the requirements for internal governance, risk assessment, and consumer protection.
The 2024 Notice outlines several general requirements for LFIs, including the requirement to have robust internal governance, compliance review, risk disclosures, risk profiling every 24 months, restrictions on leveraging, specific rating if a foreign issuer is involved.
The Central Bank's Notice No. 5170.2024, issued on October 18, 2024, introduces updates to the regulatory framework for structured products. The key changes are as follows:
Exemption from NOC for Previously Approved Products LFIs that have previously obtained a NOC for products listed in the approved list issued by the Central Bank with the 2024 Notice (the “List”) are now exempt from seeking new approvals, provided they comply with the 2024 Notice requirements. This change addresses concerns previously raised by banks regarding the impracticality of obtaining a NOC for each offering. Banks that have previously obtained a “No Objection” for products listed in the List are exempt from seeking new approvals, provided they comply with the 2024 Notice requirements. However, a “No Objection” is still required for unlisted products and for non-active Licensed Financial Institutions (LFIs) before marketing or launching structured products.
General Requirements The 2024 Notice outlines several general requirements for LFIs, including the requirement to have robust internal governance, compliance review, risk disclosures, risk profiling every 24 months, restrictions on leveraging, specific rating if a foreign issuer is involved.
Specific Requirements for Shari'ah Compliant Products LFIs offering Shari'ah compliant structured products must ensure compliance with the Higher Shari'ah Authority's guidelines and obtain approval from their Internal Shari'ah Supervision Committee (ISSC). The ISSC approval must be disclosed to clients.
Target customers While the 2024 Notice from the Central Bank does not explicitly specify the target customers of LFI for the purpose of the notice, previous notices from the Central Bank regarding structured products have primarily focused on retail clients. From our reading of the 2024 Notice, several requirements and references indicate that the notice is particularly relevant to retail clients.
For example, the 2024 Notice references compliance with the Central Bank 2020 Consumer Protection Regulation and Standards, which applies to natural clients and sole proprietorships (sole traders). There are also requirements which are applicable to high net worth individuals under the 2024 Notice.
The Central Bank's and SCA's interpretations of structured products and their regulatory frameworks complement each other, with the Central Bank focusing on consumer protection for retail clients and the SCA providing a comprehensive licensing and exemption framework for all client segments. The 2024 Notice's requirements align with the Central Bank's emphasis on protecting retail clients, while LFIs must also consider the SCA's regulations when promoting structured products.
For further information,please contact Sarah El Serafy.
Published in March 2025
