Central Bank of the UAE creates new regulation for lower-risk lenders

New law for specialised banks covers institutions that only conduct transactions in UAE dirhams

The Central Bank of the UAE said it issued a new regulation covering licensing, prudential and conduct requirements for specialised banks. Ryan Carter / The National.

A new Central Bank of the UAE regulation covering specialised institutions – lower-risk lenders that only carry out businesses in UAE dirhams – came into force on Friday.

The regulation sets a minimum paid-up capital requirement of Dh300 million that specialised banks must maintain and a risk-based capital adequacy requirement that they should continuously adhere to, the banking regulator said in a statement on Saturday. It also sets the total consolidated assets of specialised banks at a maximum of Dh25 billion.

"The objective of the new regulation is to provide a regulatory framework in which specialised banks can operate in the UAE financial sector in a robust and prudent manner," the Central Bank of the UAE said.

Specialised banks are licensed under the central bank's new regulation and are allowed to practice various financial activities such as account opening, card issuance, retail lending and wholesale lending. They are permitted to provide their services only to UAE nationals and UAE residents.

Specialised banks are allowed to conduct their activities in the UAE Dirhams only and operate according to a low credit risk model, according to the statement. They can be established either as a conventional specialised bank without Sharia-compliant offerings, or as a specialised Islamic lender, the regulator said.

"The CBUAE stresses the importance of specialised banks’ compliance with all regulations, standards and notices issued for the banking sector, except where there are specific provisions contained in the new regulation which apply to specialised banks only," the central bank said.

The UAE's banking regulator has introduced various measures to develop the banking sector and improve payment systems.

In March, it introduced new rules covering large-value payment systems (LVPS) and retail payment systems (RPS) that apply to remittance companies operating in the UAE and payment schemes that offer clearing or settlement in dirhams outside the country.

The regulator has also taken more measures to protect consumers. In February it introduced the UAE's first financial consumer protection regulatory framework, which provides a "broad spectrum of appropriate behaviour and conduct expected of licensed financial institutions".