The Central Bank of the UAE (CBUAE) has released a new regulation for specialized banks that covers licensing, prudential, and conducts standards. Specialized banks are authorized under the CBUAE's latest legislation and are permitted to engage in a variety of banking practices to benefit the local economy, including account opening, card issuing, and retail and wholesale lending. Only UAE nationals and UAE citizens are allowed to use specialized banks.

The new regulation aims to create a regulatory system in which specialized banks can function in the UAE financial sector securely and cautiously.

Specialized banks are only permitted to perform their operations in UAE Dirhams and must adhere to a low credit risk framework.  They can be founded as either a traditional specialized bank with no Islamic windows or as an Islamic specialized bank. The law establishes a minimum paid-up capital ratio of Dhs300 million for specialized banks and a risk-based capital adequacy requirement that must be met on an ongoing basis. It also limits the overall aggregate assets of specialized banks to Dhs25 billion.

The CBUAE highlights the importance of specialized banks complying with all banking legislation, guidelines, and notifications, even when there are unique clauses in the current law that apply primarily to specialized banks. The new law was issued in the Official Gazette on March 31, 2021, and it went into force on April 30, 2021.

The Board of Directors of the Central Bank of the UAE (CBUAE) met recently at Qasr Al Watan, and was supervised by Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister, Minister of Presidential Affairs, and Chairman of the Central Bank's Board of Directors (BoD).

The conference, that was attended by Abdulrahman Saleh Al Saleh, Vice Chairman of the Board of Directors and Governor of the Central Bank, and the board's members, addressed many issues on the index, most prominently a report submitted by the Banking Supervision and Examination Department which contained recommendations on financial policies and activities related to the licensing of financial institutions and a manual outlining the sanctions imposed on facilities that breach the Central Bank's policies and instructions.

The CBUAE has accepted several applications from national banks and financial institutions and provided a license to create a low-risk specialist bank. Participants in the meeting discussed the bank's Targeted Economic Support Scheme (TESS) and its role in minimizing the financial and economic consequences of the coronavirus (COVID-19) pandemic.

The meeting also decided to expand the Dhs50 billion ZERO cost financing support facility for banks and financial institutions until the end of 2021. The board then authorized the third and most current issuance of the country's banknotes, as part of the arrangements for the "Year of the 50th."

The new banknotes will be embossed with security markings that follow international requirements. Previously, the Central Bank of the UAE (CBUAE) declared the publication of a Small to Medium-Sized Enterprises (SMEs) Market Conduct Regulation to encourage best strategies within licensed financial institutions (LFIs) when dealing with SMEs. The regulation aims to improve SMEs' access to financial goods and services. The implementation of this legislation by CBUAE follows the publication of its latest Financial Consumer Protection Regulatory Framework.

The legislation promotes the CBUAE regulatory agenda by establishing market conduct principles for LFIs, enhancing governance over the design, marketing, and selling of financial products and services, and encouraging prudent financing activities. It also ensures that SMEs have reliable and relevant information to make critical choices, that specific processes for resolving grievances by SMEs are in place, and that adequate debt counseling is needed.

LFIs have to ensure that the creation of a bank account for an SME is done within three business days, provided that LFIs conduct sufficient due diligence relating to financial fraud enforcement and that the SME poses a low risk of financial fraud or terrorist funding. The legislation also mandates LFIs to maintain an autonomous and efficient complaints management function to ensure justice, accountability, and fairness in complaint resolution.