The Central Bank issues the “Limited License Banks” system in the UAE

The Central Bank has issued a system of restricted licensed banks, which require these banks to maintain a fully paid-up capital of not less than one billion dirhams, except in the case of branches of foreign banks.

The system defined the frameworks and scope of banks’ treatment of customers, where the definition of “restricted bank” refers to banks that are not allowed, under the restrictions imposed on their licenses, to include natural persons as customers with the purpose of practicing. licensed financial activities, and / or the pursuit of any licensed financial activities with or on behalf of natural persons.

The system prohibits banks with a limited license to open accounts, or provide facilities of any kind, with any amount less than one million dirhams or the equivalent. A bank with a limited license is not allowed to establish a banking relationship with a customer for any amount less than one million dirhams.

And the Central Bank has authorized – at its sole discretion – to grant approval to a restricted bank licensed to engage in licensed financial activities with a specific category of natural persons, with certain conditions and controls, and that this natural persons were assessed by the bank as “high-income customers”.

In detail, it dealt with Circular No. 23/2022 addressed to all banks with a limited license, the vision of which was to obtain a copy of the system of banks with a limited license.

In the introduction to the circular, the Central Bank stated: “The Central Bank seeks to strengthen the supervisory framework for banks in general, and to meet the needs of banking institutions engaged in limited licensed financial activities.”

He explained that the “Limited Licensing Banking System” only deals with the specific regulatory requirements that apply to banks with a limited license. Banks “will remain fully applicable and enforceable for banks with limited licensing.

Banks licensed under the provisions of this Act, and engaged in activities supervised by another supervisory authority, are required to verify that they have obtained the necessary license (s) to carry out those activities, of the relevant authority or authorities.

This system aims to strengthen the central bank’s regulatory framework for banks, and to allow banks to function as restricted licensed banks in the UAE.

4 million dirhams assets for high-income earners

The first article included the definitions, including the natural person who is considered a high-income customer, and whose net assets are more than four million dirhams or the equivalent, provided that his calculation does not reflect the value of the does not include property in his main residence. , or any money obtained through a secured loan.

Its total liquid assets must also be at least one million dirhams or the equivalent.

It also defined banking services for individuals as the practice of licensed financial activities with natural persons.

The license .. the name of the bank

The second article dealt with licensing, as it required any person intending to operate a bank with a limited license to first obtain a license from the Central Bank.

Similarly, the licensee of a bank with a limited license must carry out the licensed financial activities, as specified in its license in accordance with the provisions of Section of this Act, within a maximum period of six months from the date of its notification of approval. of the license.

In addition, a bank with a limited license wishing to discontinue or suspend any of its licensed financial activities must lodge an application with the Central Bank at least six months in advance, explaining the reasons for such suspension or suspension.

Any changes to the limited license bank’s name, legal form, statutes or articles of association require prior approval from the Central Bank.

The brand name expresses the restrictive nature of the bank.

The commercial name of a limited licensed bank must include any of the following terms: “business bank” or “investment bank” or any term that expresses the restrictive nature of the bank’s licensed financial activities and has been approved by the bank.

The Central Bank may, under certain circumstances and in its sole discretion, approve a name that does not meet the above naming requirements and the trade name may not include any term that refers to any activity other than the financial activities assigned to the bank under the provisions of these Regulations .

90 days for compliance with commercial bank

Any holder of a license, issued under the provisions of the “Commercial Banking Regulations” issued in accordance with the Central Bank Board Resolution No. 41/4/2007, shall be deemed to be licensed in terms of the provisions of this Regulation on the date of its entry into force. . By the date on which this system comes into operation, any bank that does not comply with its provisions must submit a detailed plan to the Central Bank within ninety days for compliance with the requirements set out in this system.

Individual activities are prohibited

The third article deals with the permitted activities. Banks with a limited license are not allowed to engage in retail banking activities, ie they are not allowed to carry out licensed financial activities with or on behalf of natural persons.

In addition, a bank with a limited license is not allowed to establish a banking relationship with a customer, with any amount less than one million dirhams, or the equivalent thereof, that is, a bank with a limited license may not grant an initial deposit of any kind, or any credit or initial financing facilities to a client, with an amount of less than one million dirhams or the equivalent thereof.

Exceptions for high-income people

According to Article Three, however, the Central Bank may, in its sole discretion, grant the approval of a restricted bank licensed to engage in licensed financial activities with a specific category of natural persons, provided that certain controls and conditions are imposed on its license. . , and in all cases those natural persons must have been evaluated. By the Bank as “high-income customers”, ie compatible, at least, with the criteria set out in the definition of this term of this Regulation.

1 billion dirhams paid up capital

The fourth article dealt with the requirement to maintain a minimum capital, while the fifth article specified the minimum paid-up capital to be maintained, as it required banks with limited licenses operating in the UAE, a fully paid-up capital of not less than one billion dirhams, except in the case of branches of foreign banks. .

Branches of foreign banks licensed to operate as licensed banks must maintain capital in accordance with the “Bank Minimum Regulations” issued by the Central Bank.

The Central Bank may, as part of the licensing process, impose minimum or higher capital requirements, and determine the type of capital that is eligible to meet these requirements, and these higher minimum capital requirements will continue to apply until and unless the Central Bank, at its own discretion, Review the requirement, and make a new decision on the capital.

The sixth article dealt with the type of capital to be retained, while the seventh article dealt with the relationship with the capital requirements.

other.

Violation of capital requirements

Article 8 sets out the mechanisms for dealing with the issue of breach of the minimum capital requirements, according to which a bank with a limited license that is in breach, or is likely to breach the minimum capital requirements, the Central Bank must notify. , immediately.

A bank with a limited license that violates the minimum capital requirements, or is likely to exceed the minimum capital requirements, must submit an affirmative action plan to the Central Bank for approval to return the capital to the required minimum level.

According to Article 8, a bank with a limited license must obtain approval from the Central Bank for any proposed dividend distribution, including the distribution of stock dividends, which will result in a breach of the minimum capital requirements as specified in Section (5) of a Bank with a limited license must obtain this approval before the proposed dividend distribution is announced by means of an advertisement in the newspapers or by any other means of communication and before the distribution proposal is submitted to the shareholders for approval.

The ninth article dealt with the application of banking regulations to banks with limited licenses, as it required them to comply with all regulations issued by the Central Bank applicable to banks, and the minimum capital requirements for banks operating in the ” minimum capital system for banks ”issued by the Central Bank does not apply to banks Limited license established locally, as the minimum capital requirements are specified within this system.

Violations and penalties

The tenth article specifies implementation and penalties, as it provides that any breach of any provision of this system and the associated standards may be subject to supervisory procedures, administrative procedures and financial penalties, as deemed appropriate by the Central Bank.

According to the article, the supervisory and administrative measures and financial penalties imposed by the Central Bank may include the withdrawal, replacement or limitation of the powers of senior management or members of the board of directors, the provision of temporary management for the bank, the impose fines or prevention. individuals working in the UAE banking system.

The Department of Regulatory System Development at the Central Bank shall be the reference for the interpretation of the provisions of this system in accordance with Article Eleven of this system.

The twelfth article included the cancellation of some previous decisions and circulars.

According to the thirteenth and final article, this system will come into effect one month after the date of publication in the Official Gazette.

The Central Bank may apply transitional arrangements on a case-by-case basis to facilitate full compliance by banks that, on the date of publication of this Act, carry out restricted activities in accordance with the provisions of this Act.

regulatory controls

The Central Bank of the Emirates defines a “Licensed Bank” as any bank that is licensed under the provisions of the Central Banking Act and is subject to restrictions imposed on its authorized licensed financial activities as specified in the system.

The definition refers to banks that are not allowed, under the restrictions imposed on their licenses, to include natural persons as customers, for the purpose of engaging in authorized financial activities, and / or to engage in any licensed financial activities with or on behalf of individuals (of course). persons).

Banks with limited licenses are prohibited when entering into a banking relationship with a customer for any amount less than one million dirhams. It is not permitted to open accounts, or provide facilities of any kind, for any amount less than one million dirhams. or its equivalent.

The Central Bank may, under the new system, and in its sole discretion, grant approval to a restricted bank to carry out licensed financial activities with a specific category of individuals, subject to certain conditions and controls, and that these natural persons be evaluated. by the bank as high-income customers.

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