GCC Quarterly Review - Q2 2015

The GCC Quarterly Review briefly summarises a selection of the major developments in the laws of the Gulf Cooperation Council (GCC) region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) in the second quarter of 2015, with links to further reading, where available.

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Foreign investment by Qualified Foreign Investors in Saudi listed shares: New rules in the Kingdom of Saudi Arabia permit direct investment by qualified foreign investors (QFIs) in shares listed on the country’s stock market, the Tadawul. The Saudi Arabian Capital Market Authority (CMA) published the Rules for Qualified Foreign Financial Institutions Investment in Listed Shares on 4 May 2015, following a period of consultation. The new rules came into force on 1 June 2015 and the first foreign investments under the new regime were permitted from 15 June 2015. Read more.

New Commercial Companies Law in force in the United Arab Emirates: The Federal Commercial Companies Law No.2 of 2015 came into force in the United Arab Emirates (UAE) on 1 July 2015. The new law repeals and replaces the previous Commercial Companies Law No. (8) of 1984. The new Commercial Companies Law makes reasonably conservative amendments to the existing regime, rather than creating a new legal framework for companies operating in the UAE. The types of companies governed by the law, corporate structures and foreign investment restrictions are broadly the same as the under the previous law. Some of the key changes allow a greater flexibility in share structure than under previous law and a more flexible IPO regime. There is also a new restriction on financial assistance and an increased focus on corporate governance. Many changes will be welcomed by the market and should make the UAE more investor-friendly, especially in relation to IPOs, though some ambiguities and challenges remain. Read more.

Abu Dhabi Global Market issues first regulations: Abu Dhabi Global Market (ADGM) issued the first suite of regulations applicable in the international financial centre in Abu Dhabi. Following the consultation earlier in the year, the new ADGM regulations were enacted on 3 March, published on the ADGM website on 14 June 2015 and in force on the same date. The 2015 regulations now in force are the Application of English Law Regulations, Companies Regulations, Commercial Licensing Regulations, Insolvency Regulations, Employment Regulations, Real Property Regulations, Interpretation Regulations and Strata Title Regulations. The final form of the regulations enacted is broadly similar to the draft regulations on which ADGM consulted (read more). Also, a range of rules made under the regulations were published on 15 June 2015, including model articles and ADGM Registrar Guidelines. ADGM is receiving applications from non-financial services entities of from Private Limited Company and Branch of a Foreign Company as part of its phased preparations for formal launch later in 2015. The free zone is now consulting on a second wave of regulation, including a draft Financial Services and Markets Regulations and its accompanying rules and the Limited Liability Partnership Regulations. The consultation ended on 11 August 2015. On 3 August 2015, the ADGM Financial Services Regulatory Authority (FSRA) and the Securities and Commodities Authority (SCA) signed a Memorandum of Understanding to exchange information and enhance mutual cooperation on areas including market supervision, investor protection and oversight of financial markets. Read more about ADGM.

UAE Central Bank liquidity regulations for banks: The UAE Central Bank issued new liquidity regulations in May for banks operating in the UAE. The UAE Central Bank Circular No.33/2015 requires banks to have a robust liquidity risk management framework in line with the Basel III liquidity standards. The UAE Central Bank will apply a proportionate approach when reviewing a bank’s liquidity framework, taking into account various factors, including the size of the bank, interconnectedness and its possible impact on the UAE financial system. Banks are now required to comply with the Eligible Liquid Assets Ratio (ELAR) at all times, with effect from 1 July 2015. Banks are required to hold 10% of their total liabilities in eligible liquid assets, and the rate will be subject to periodic review. Banks will only be required to comply with the other ratios once approved to do so by the UAE Central Bank. Compliance with the Liquidity Coverage Ratio (LCR) will be required at all times for approved banks, with phased implementation starting from 1 January 2016 and full implementation by 1 January 2019. Those banks approved to move to the LCR will also be required to comply with the Net Stable Funding Ratio (NSFR) from 1 January 2018. The implementation of the previous liquidity regulations (Circular No.30/2012 on Liquidity Regulations at Banks) issued in July 2012 was postponed in December 2012.

FATCA implementation in the GCC: Kuwait, Qatar and the UAE have each signed Model 1 Intergovernmental Agreements (IGA) with the United States (US) in the first half of 2015, addressing the implementation of the U.S. tax rules known as FATCA. Copies of the IGAs are available on the FATCA - Archive page of the US Department of the Treasury website. Bahrain and Saudi Arabia each have a Model 1 IGA agreed in substance with the US and are treated as having an IGA in effect as from 30 June 2014. In jurisdictions which have not agreed an IGA, if a bank or financial institution is not FATCA compliant by the applicable time limit it risks receiving interest (and even principal) net of FATCA withholding. FATCA introduces withholding and reporting requirements for “foreign” (i.e. non-U.S.) financial institutions and certain other non-financial foreign entities. Read more about FATCA.

DIFC gateway to enforce arbitral awards in Dubai: In a judgment issued in April 2015, the DIFC Court recognised a Dubai arbitral award issued by the Dubai International Arbitration Centre in ARB 003/2013 Banyan Tree Corporate PTE Ltd v Meydan Group LLC. The DIFC Court has also confirmed that it has jurisdiction to hear requests for the recognition of a foreign arbitral award in ARB 002/2013 (1) X1, (2) X2 v (1) Y1, (2). there was no connection with the DIFC. The DIFC legal framework grants the DIFC Courts jurisdiction to hear applications to recognise an arbitral award as binding within the DIFC “irrespective of the jurisdiction in which it was made” and to enforce an arbitral award against assets within the DIFC. Where the assets are located outside the DIFC, the DIFC Court may refer the order recognising the award for enforcement to the relevant court. Where the assets are in Dubai, the DIFC Court order should be able to be enforced without review of the merits under reciprocal enforcement regime between the DIFC Courts and the Dubai Courts. In contrast, the DIFC Court of First Instance held in July 2015 that the DIFC Courts’ jurisdiction to execute foreign court judgments is limited to execution within the DIFC in CFI-043-2014 DNB Bank ASA v (1) Gulf Eyadah Corporation (2) Gulf Navigation Holding PJSC. The DIFC legal framework does not allow a foreign judgment recognised by the DIFC Court to be referred to Dubai Courts for enforcement against assets located onshore in Dubai. 

Iran: A historic step towards economic re-engagement: On 14 July 2015, a final agreement known as the Joint Consolidated Plan of Action (JCPOA) was reached between Iran and the so-called P5+1 or E3/EU+3 (the United States, United Kingdom, Germany, France, Russia, and China, together with the High Representative of the EU for Foreign Affairs and Security Policy), relating to significant limitations on Iran’s nuclear programme and the lifting of nuclear-related sanctions. The parties to the JCPOA are now moving towards approval, adoption and implementation of the agreement.

This is a historic step towards Iran’s economic re-engagement with the world. Commercial parties are already looking to understand the nature of the sanctions relief set out in the JCPOA. They are balancing the potential opportunities the JCPOA provides with ensuring continued sanctions compliance throughout this staged process of alleviation and the risk of the possible reinstatement of sanctions. We continue to advise clients on sanctions related matters as they seek to understand the potential opportunities that the alleviation of sanctions will bring.

Key points to note about the JCPOA include:

  • The sanctions relief under the JCPOA is not yet in force. There have been no immediate changes to the position regarding business in, or connected to, Iran. The limited temporary sanctions relief already in place under the Joint Plan of Action previously agreed by the P5+1has been extended by the EU to 14 January 2016, and by the US to the date on which sanctions will first be alleviated under the JCPOA, to allow time to make the necessary preparations to implement the JCPOA. The extended EU deadline indicates that first alleviation of sanctions under the JCPOA is not expected to occur before 2016.
  • After initial conditions are met, the JCPOA calls for steps to target access in the areas of trade, technology, finance and energy, as well as the lifting of (i) UN Security Council sanctions motivated by Iran’s nuclear aspirations; (ii) national nuclear-related economic and financial sanctions imposed by the EU; and (iii) certain US sanctions, primarily relating to secondary sanctions targeting non-US persons.
  • The US sanctions will continue to restrict international financial institutions, to the extent that a relevant transaction or service, or the relevant part of the institution, is subject to US jurisdiction.
  • Not all sanctions will be alleviated: human rights related sanctions under EU Council Regulation 359/2011 (as amended) are expected to remain in place.

The JCPOA contains a “snap-back” provision resulting in the re-imposition of previous UN sanctions, and an option for the E3/EU+3 to cease their sanctions alleviation under the JCPOA, which may be invoked by any member of the E3/EU+3 in the event of “significant non-performance” of Iran’s JCPOA commitments. Such reinstatement of sanctions is subject to a bespoke dispute resolution process triggered by a belief by one or more of the members of the E3/EU+3 that Iran is not meeting its commitments under the JCPOA. However, even after the dispute resolution process, if the relevant member of the E3/EU+3 is not satisfied that the issue has been resolved and deems Iran to be in significant non-performance of its JCPOA commitments, then that relevant member may unilaterally re-impose its own sanctions.

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