This regional snapshot demonstrates how the Financial Services sector is evolving and positioning the region as a global hub for financial services.
Jody WaughDeputy Managing Partner, Head of Banking & Finance
The financial services sector is a key driving force of the regional economy, and the sector continues to see increased regulation across jurisdictions. In this article our experts from across our offices in the region provide key insights into the regulatory landscape. The pace of change in the Middle East is steadfast and nonstop and for our clients it is vital that our teams are equipped to advise on the significant legal and regulatory updates happening in the financial services sector.
With this in mind, the country by country commentary and highlights you will find below cover the significant legal and regulatory updates from 2022, and what’s to come in 2023. This regional snapshot demonstrates how the sector is evolving and positioning the region as a global hub for financial services.
In February 2022, the Central Bank of Bahrain (“CBB”) amended its regulations governing financing companies to permit short term instalment credit activities such as ‘Buy Now, Pay Later’. ‘Buy Now, Pay Later’ is a form of short-term financing that allows customers to make purchases and pay them at a future date.
The CBB has made amendments to the Volume 5 (Type 3: Financing Companies) of the CBB Rulebook permitting financing companies to offer short term instalment credit to consumers. Financing companies require a minimum capital of five million Bahraini Dinars (BHD5,000,000). However, a financing company offering short term instalment credit, may be allowed, as determined by the CBB to maintain a lower capital based on the nature, scale and size of the operations.The CBB revamped the funds regime in Bahrain by introducing a new Collective Investment Undertaking (“CIU”) Module and deleting all previous Modules contained in Volume 7 (CIU) of the CBB Rulebook. As a result, CIUs are now only divided into two categories, namely retail CIUs and exempt CIUs.
In 2022, the CBB issued consultations on existing legislation, rules and new proposed legislation which we anticipate will be implemented in 2023. The most significant of these were the draft secured transactions law, the trust law and changes to certain provisions governing cheques contained in the Law of Commerce (Law No. 7 of 1987).
Cashless FIFA World CupDuring the FIFA World Cup 2022, Qatar was host to an estimated 2 million visitors. To ensure seamless and safe processing of payments during the World Cup, the commercial banks in Qatar (under the supervision of the Qatar Central Bank) offered a digital banking platform, which allowed all vendors present at the World Cup to have the ability to process cashless payments and further allowed visitors to use their international cards for payments. This was a significant step by Qatar towards achieving its goal of a cashless society by 2030.
Security RegisterSearchable electronic public security register for security over moveable assets has been established in Qatar pursuant to the Moveable Assets Security Law. This indicates a shift to an electronic system for the registration of security over moveable assets. The security register is public and any party is entitled to generate a paper or electronic report of registered security. The adoption of such a public register will make it easier to offer credit to Qatar-based entities.
Licenses under the Payment Services RegulationsDuring 2022, the Qatar Central Bank issued the first ever licenses under the Payment Services Regulations for digital payment services to Ooredoo Money, iPay (by Vodafone Qatar), Skip Cash and Sadad Payment Solutions. The services offered by the companies include the issuance of electronic wallets which provide payment features for merchants and allow transfer of funds within Qatar. QCB has further stated that this is an initial step, and it aims to include all companies providing digital payment services in the country under its supervision.
The Central Bank of Kuwait (“CBK”) is focused on adopting new Fintech solutions that foster the integrity and stability of the banking and financial system in Kuwait and fulfil the economic needs of the local market.In 2022, the CBK issued new guidelines that regulate the digitalization of banks. The guidelines cover the (i) definition of digital banks; (ii) its legal form; (iii) its licensed activities; (iv) procedures for establishing a digital bank; and (v) the applicable supervisory and regulatory instructions and controls.
Furthermore, the CBK is currently considering new Fintech E- Wallet and Buy Now Pay Later (BNPL) products that would serve the interests of a wide range of users.
These products primarily target the unbanked low-income segments in Kuwait, allowing employers to pay electronically wages to its employees who will be able to save their money in a safe electronic mode, withdraw from their wallets using ATMs, transfer it to others who are subscribed to the same service or make cross-border money transfer through using their smart phones.
BNPL allows customers to purchase from the participating online retailers and pay online in a flexible and deferred manner. The future payment is either done as a one-time payment, or on instalments, without imposing any interests or fees on customers.Both products are being tested and evaluated among a group of volunteers. Once these products are proved to be safe and efficient, the CBK will issue the applicable regulatory requirements.
We have witnessed in 2022 significant regulatory developments which has started with the issuance of the long awaited Fintech law. Law No. 5 of 2022 has been issued to regulate the development and use of financial technology in non-banking financial activities. Subsequent regulations of the Financial Regulatory Authority were issued to give more clarity to the provisions of the Fintech law and its implementation. Nonetheless, further regulations are still anticipated during 2023 given that the law is silent on several procedural issues.
On a parallel front, the Central Bank of Egypt (“CBE”), in early 2022, has taken significant restrictive approaches with respect to importation of finished goods and commodities into Egypt. As per the CBE’s decision No. 49 of 2022 dated 13 February 2022, importers were required, as of 1 March 2022, to open a letter of credit with a licensed bank in order to be able to import finished goods into Egypt as the sole method of payment to exporters and suspended the use of documentary collection. Requiring payment through letters of credit, coupled with the limited ability of Egyptian banks to source for foreign currency, has significantly impacted importation activities. Such impact resulted in the CBE’s reconsideration of the requirement of payment via letters of credit. The CBE, in December 2022, decided on the effective abolishment of the decision issued in February 2022 such that importers will no longer be required to open a letter of credit with a licensed bank and use of documentary collection would be re-applied.
Another significant update in the non-banking financial sector is the decree of the Financial Regulatory Authority (“FRA”) issued on 20 February 2022 with respect to the ownership and licensing requirements of companies engaged in non-banking financial services. The FRA, by virtue of said decree, mandates that its approval should be obtained prior to any potential acquirer initiating a due diligence exercise in relation to any non-banking financial institution.
There are ongoing community dialogues with respect to new CBE regulations governing the payments environment. The current Banking Law No. 194 of 2020, although, introduced payment services and operations however absence of executive regulations to date impacted the potential growth of the payments in Egypt. Nonetheless, there are hopes that the detailed regulations pertaining to payment services and payment operations are finalized during the first half of 2023.
2022 legal and regulatory updates affected several business segments, including, those concerning foreign investments, the medical industry, the labour market, and the environment. As a highlight, the much anticipated the Investment Environment Law No. (21) for the year 2022 (the “Investment Environment Law”) came into force on 14 January 2023. This new law replaces the previous Investment Law No. (30) for the year 2014, and aims to drive economic growth through job creation and support sustainable and effective economic growth within Jordan, while similarly improving competition in the Jordanian private sector. In terms of investor incentives, the Investment Environment Law further aims to enhance and foster transparent and fair treatment between Jordanian and Non-Jordanian investors.
In 2023, legislative updates are expected with respect to Defence Law No. 13 of 1992 (the “Defence Law”), which initially came into effect during the onset of the COVID-19 pandemic in order to provide the necessary legal tools and powers for the Jordanian government to manage and mitigate the effects of the COVID-19 pandemic. However, notwithstanding current minimal COVID-19 infection rates and the easing of certain legal applications of the Defence Law, its orders, and instructions have not been entirely lifted and remain in full force and effect. Although there have not been any official announcements by the Jordanian government on the matter, these updates are expected in early 2023.
In light of the recent vote of confidence for Iraq’s Mohammed Shia al-Sudani’s government, there have been recent discussions across the Iraqi Parliament of numerous draft laws affecting a myriad of sectors across Iraq. The Iraqi Parliament discussed in mid-November of 2022 several draft laws, the first of which concerns enforcing cooperation between the Iraqi public and private sectors, as put forward by the Economic and Industry, and Trade and Financial parliamentary committees. Discussions of this draft law paid particular attention to drafting provisions therein to encourage Iraqi citizens to pursue employment in the private sector and in turn provide them with the corresponding commitment of ensuring that they receive the appropriate retirement insurances. Additionally, the Iraqi Parliament discussed a draft law aimed at instating a national association for the nuclear, radiological, chemical and biological monitoring and control, as put forward by the Health and Environment, and Higher Education and Scientific Research parliamentary committees. Discussions of this draft law highlighted the importance of the draft law’s contribution to creating a safer environment for Iraqi citizens and attracting Iraqi talent as part of instating such a national authority. Further, there have been parliamentary discussions regarding the reintroduction of the cybercrime draft law, which was initially introduced in 2011. Similarly, to its initial introduction, this draft law is aimed at enhancing online privacy through criminalising online threats on both the individual level and the broader country level. Although Parliamentary discussions are concerned with draft laws, it seems that there is a general Iraqi move towards legislative innovation over 2023.
In 2021 and 2022, a number of key legislations were issued, which came into effect in 2023. These include the Securities Law (Royal Decree No. 46 of 2022), the Personal Data Privacy Law (Royal Decree No. 6 of 2022) and the Central Bank of Oman’s Financial Consumer Protection Regulatory Framework (Circular No. B1184 of 2021). The Securities Law came into force in January 2023 and the ensuing regulations are expected to be handed down this year. Similarly, the Personal Data Privacy Law came into effect in February 2023 and the ensuing regulations are expected to be issued this year. Whereas the deadline to comply with the Financial Consumer Protection Regulatory Framework is June 2023. Financial institutions shall ensure compliance with these regulatory frameworks and may contact our Oman team for assistance. Additionally, as is the case across the globe, the LIBOR/SOFR transition deadline is June 2023. We are available to assist with this transition relating to any existing facilities not yet updated, whether it be conventional or Islamic financing.
The New Companies Law: The new Companies Law (which came into force in January 2023) has significantly changed the way in which business and finance will progress in Saudi Arabia. This is particularly the case in the context of raising debt and equity financing. Under the new Companies Law, Joint Stock Companies, Simple Joint Stock Companies and Limited Liability Companies are able to issue debt instruments and Sukuk. Previously, Limited Liability Companies were not able to issue bonds and Sukuk. On the equity side, Joint Stock Companies and Simple Joint Stock Companies now have the new concept of authorized and paid-up capital, different classes of shares. Simple Joint Stock Companies are ideal for conducting multiple rounds of capital raising. There are other changes relating to corporate structuring options such as the inclusion of the concept of corporate splits, drag-along and tag-along rights, mandatory offers and squeeze outs.The Open Banking Framework: In January 2021, the Saudi Central Bank (SAMA) announced the Open Banking Policy aiming to “develop a digital economy, enabling Financial Intermediaries to support private sector growth through open financial services to new types of players.” The Open Banking program is one of the initiatives of the FinTech strategy, and one of the pillars of the Financial Sector Development Program under Saudi Vision 2030. The Open Bank strategy which was approved by the Council of Ministers in May 2022, intends to transform the Kingdom of Saudi Arabia into a worldwide FinTech hub where technology-based innovation in financial services serves as the basis for enhancing the economic empowerment of individuals and society. The first phase of Open Banking services will focus on the introduction of account information service, whereas the second phase of the framework will focus on the payment initiation service. In accordance with the announcement published by SAMA, SAMA is tracking the progress of banks and FinTech to ensure that they are prepared to deliver Open Banking services by the first quarter of 2023.
The beginning of 2022 saw the decriminalization of bounced cheque and treatment of joint accounts under the reformed UAE Commercial Code. The Securities and Commodities Authority (SCA) also revised its Rulebook in 2022 by introducing broad categories of licensed financial activities in particular Crowdfunding Platform Operator). 2022 witnessed significant amendments to the UAE Central Bank laws and regulations warranting banks to assess their existing collateral arrangements and significantly limiting unsecured lending. Further new regulations were introduced by the UAE Central Bank on regulating insurance activities with guidance to banks and insurance intermediaries on establishing and maintaining escrow accounts for the safeguard of insurance premiums and claim settlements. By the end of 2022 the UAE Cabinet issued its decision on the regulations of virtual assets and service providers in order to consolidate the regulation and licensing of virtual asset activities at a federal level through the SCA and recognizing Dubai Virtual Assets Regulatory Authority as a local licensing authority for Dubai.
In the beginning of 2023 the new UAE Commercial Code took effect reshaping the substantive law on banking. The new law introduces designated Islamic finance services by banks and recognises the guidance on Central Bank and Higher Shariah Authority guidelines on Islamic finance. The beginning of 2023 also saw enactment of the Funds Regulations by SCA which introduced a new funds regime with an aim to revamp the existing legislative framework relating to the incorporation and governance of public and private funds established in the UAE. A new revamped insolvency law is expected in 2023 based on the experiences of and consultation with the relevant stakeholders under the previous bankruptcy regime. The Central Bank is expected to introduce in 2023 open finance regulations for the UAE market to modernize (and promote inclusiveness) provision of financial services in the UAE.
For further information,please contact Jody Waugh.
Published in February 2023
