Introduction:

In recent years, the UAE has continuously updated its legal framework to enhance regulatory oversight and adapt to global financial trends. One significant development is the amended Federal Decree-Law No. 14/2018 on the Central Bank and the Organisation of Financial Institutions and Activities, which introduces important amendments to the UAE Banking Law. These amendments enhance the efficiency, transparency, and stability of the banking sector, aligning with global best practices while addressing local economic needs.


Overview of New Amendments: Federal Decree-Law No. 14/2018:

Federal Decree-Law No. 14/2018 represents a comprehensive reform initiative aimed at updating the regulatory framework governing banks and financial institutions in the UAE. It builds upon existing regulations to adapt to developing market-changing aspects, technological advancements, and international standards.


Key Amendments and Implications:

Revised Definition of Transfer Order: The newly amended Article 1 of the UAE Banking Law under Federal Decree-Law No. 14/2018 introduces a revised definition of Transfer Order within Financial Infrastructure Systems, which includes:

  • Instructions by a participant to transfer funds to another participant within a settlement system.
  • Putting funds under a participant’s control according to the rules of a financial system.
  • Instructions to release a party from payment obligations as per the settlement system’s rules.
  • Instructions to settle obligations by transferring securities.
  • Instructions that result in taking on or releasing a party from payment obligations for retail transactions.

Additionally, the definition of Currency has been expanded to include the state’s official national currency banknotes, coins, and digital currency, with Dirham as the monetary unit.

Opening Accounts: The provisions of Article 42 were replaced to allow the Central Bank to open various types of accounts:

  • Accounts in the national currency or foreign currencies for licensed financial institutions, accepting deposits, and managing interests.
  • Accounts for monetary authorities, other central banks, foreign banks, international financial and monetary institutions, and Arab and international monetary funds.
  • Any other accounts within the limits and according to the rules set by the Board of Directors.
  • Maintenance of digital currency financial balances as deemed appropriate by the Board of Directors.


Currency Issuance and Legal Tender (Articles 55 and 56):

The issuance of currency remains an exclusive right of the State, exercised by the Central Bank. The amendments ensure that:

  • Only the Central Bank can issue currency.
  • Currency notes and digital currency issued by the Central Bank are considered legal tender with absolute legal force.
  • Currency coins have legal tender force for payments up to AED fifty, with the Central Bank accepting larger amounts without limitation.


Currency Specifications, Features, and Denominations (Article 57):

The Central Bank is authorised to issuing paper currency and coins, determining their specifications, and ensuring their maintenance. The Board of Directors is responsible for the proposal and features of digital currency, publishing these decisions in the Official Gazette.


Digital Currency (Article 60 bis):

A new Article 60 bis was added to regulate the issuance, circulation, and withdrawal of national digital currency. The Central Bank is not obligated to refund lost or tampered digital currency.


Monetary Base Coverage (Article 62):

The Central Bank may maintain reserves of foreign assets to cover the Monetary Base, including gold, foreign currency deposits, securities, and digital currencies issued by other central banks.


Protection of Customers and Credit Facilities (Articles 121 and 121 bis):

The Central Bank will establish regulations to protect customers of Licensed Financial Institutions and may create an independent unit to handle complaints. Financial institutions are required to obtain sufficient guarantees for credit facilities provided to customers, with sanctions for non-compliance.


Clearing and Settlement Operations (Article 124):

The Central Bank can establish and operate clearing and settlement systems, link them to domestic and international systems, and create central depositories for securities. Regulations for these systems and their participants will be issued by the Board of Directors.


Licensing Financial Infrastructure Systems (Articles 124 bis 1 and 124 bis 2):

New articles detail the process for licensing Financial Infrastructure Systems, including application procedures, standards, and conditions. The Central Bank has the discretion to approve or reject applications based on the financial sector’s capacity and market needs.


Mutilation of Currency (Article 141):

Intentional mutilation, destruction, or tearing of currency is punishable by imprisonment and a fine of no less than AED 10,000.


Interpretation of Technical Terms (Article 157):

References to currency terms in legislation now include digital currency. Default Assets used for payment or exchange are subject to Central Bank regulations. The Central Bank may issue a glossary of technical terms, published on its official website.


Conclusion:

The amendments represent a significant step towards modernizing the UAE’s banking regulatory framework. These changes aim to enhance the sector’s efficiency, transparency, and stability, ensuring alignment with international standards while addressing local economic requirements.