Our Banking & Finance lawyers at Al Tamimi & Company discuss The Central Bank of the UAE Implements Formal Regulations for Restricted Licence Banks in the
Mark Brown Partner, Head of Projects, Banking & Finance
Marianna Margaritidou Trainee Solicitor, Banking & Finance
The Central Bank of the UAE (“CBUAE”) has been, for several years, issuing restricted commercial banking licences to foreign bank branches allowing them to offer facilities only to corporate clients in the UAE.
The list of banks granted a restricted commercial banking licence is published periodically on the CBUAE’s website. As of 30 September 2021, there were ten wholesale banks in the UAE. Banks with restricted commercial banking licences had restricted financial activities and were governed by all regulations issued by the CBUAE, unless the CBUAE specified otherwise.
The Restricted Licence Banks Regulation (CBUAE Circular 23/2022) (“Regulation”) has now been issued by the CBUAE to formalise, simplify, and regulate activities previously carried out under restricted commercial banking licences and to make clear the need and availability of a specific licence.
The Regulation was published on 15 April 2022 and came into effect on 15 May 2022, following which all banks falling within its ambit must comply with its provisions in addition to the other regulations, standards, guidelines, and regulatory instructions issued by the CBUAE.
Foreign bank branches which have already obtained a restricted commercial banking licence will be deemed to be licensed under this Regulation. However, if they are not compliant with all provisions of the Regulation, they must, within 90 days of 15 May 2022, provide the CBUAE with a detailed compliance plan to regularise their position.
The Regulation applies to banks which are licensed by the CBUAE but are not permitted to on-board natural persons as customers for the purpose of conducting Licensed Financial Activities (as defined under Article 65 of the Federal Law No. 14 of 2018 (“CBUAE Law”) and/or conduct any Licensed Financial Activities with or on behalf of natural persons (defined as “Restricted Licence Banks”).
Restricted Licence Banks are prohibited from the following:
undertaking any Licensed Financial Activity with or on behalf of natural persons;
accepting an initial deposit of any type of any amount less than AED 1 million; and
providing an initial credit or funding facility to a customer in any amount less than AED 1 million.
While the above was generally the practice previously, the Regulation has introduced some flexibility to the prohibition of establishing a banking relationship with natural persons by allowing the CBUAE to approve, at its sole discretion and subject to the imposition of controls and conditions, a Restricted Licence Bank to conduct Licensed Financial Activities with High-Net-Worth Customers.
High Net Worth Customers are defined under the Regulation as natural persons:
whose net worth is more than AED 4 million without accounting for the value of the person’s primary residence or any money raised through a loan secured on that primary residence; and
whose liquid financial assets total at least AED 1 million.
Under the Regulation, any natural or juridical person who intends to operate as a Restricted Licence Bank must obtain a licence from the CBUAE. While in the past restricted licences were only available to foreign banks, the Regulation has widened the scope of eligibility by allowing restricted Licensed Financial Activities to be carried out by foreign as well as local banks alike.
In order to obtain a licence, the applicant must meet requirements relating to minimum levels of capital, ownership, and trade name.
Minimum Levels of Capital and Business Plan
The following minimum levels of capital must be calculated on a standalone basis and be maintained continuously:
Type of Restricted Licence Bank
Minimum Level of Capital
Foreign bank branches
AED 100 million fully paid-up capital at the level of the branch and AED 2 billion eligible capital at the entity level.
All cases, except foreign branch
AED 1 billion fully paid-up capital
The CBUAE has retained the power, at its sole discretion, to impose a higher minimum capital requirement and define the quality of capital eligible to meet this requirement.
As part of the licensing process, an applicant must submit a three-year business plan showing that the proposed level of paid-up capital is sufficient to cover the expected regulatory capital requirements over the three-year period.
A Restricted Licence Bank incorporated in the UAE must comply with the ownership requirements set out in the CBUAE Law according to which national shareholding may not be less than 60%.
Under Article 9 of the Regulation, Restricted Licence Banks must also comply with all other regulations issued by the CBUAE.
In summary, the Regulation opens up the eligibility for a restricted commercial banking licence to local banks, clarifies the requirements for licensing and the minimum levels of capital as well as sets out the activities that are prohibited to be carried out by Restricted Licence Banks .
While the Regulation is a continuation of the CBUAE’s practice, it provides better market certainty for any potential new entrants fostering a more diverse financial services industry.
For further information, please contact Mark Brown.
Published in August 2022
