UAE: What happened in 2019 and significant events in 2020

United Arab Emirates Law: Year in Review 2019 and Year to Come 2020 summarises some of the major developments across the UAE last year, and a selection of key changes that we anticipate over the coming year. There are links to further reading, where available.

Across the UAE, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), legislators and regulators continue to refine rules to improve the ease of doing business and weave international best practice into local law. There are promising new opportunities for foreigners to invest in a range of business activities under the UAE’s new foreign investment regime. The DIFC’s thoroughly modernised framework for companies improves corporate governance, enhances employee rights and supports the rescue of businesses in financial difficulty. FinTech continues to be a key focus for regulators, with the launch of new accelerator and sandbox programmes and more regulatory clarity around cryptoassets and digital securities. The ADGM continues to pioneer new standards in this space.

Explore our overview of key developments below.

Updates in

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key areas in 2019 and 2020

Modernisation has been the key constant across the UAE, DIFC and ADGM in 2019. We have seen important reforms affecting companies at all stages of the corporate lifecycle – from startups to established publicly listed companies and companies facing financial distress. There has been a continued drive to enhance regulatory oversight and to blend international best practice into local laws across sectors. These changes support the further development of the UAE’s economy and its status as a hub for business activities across regional and international borders. We expect to see a continued drive for change in 2020.

Scott Campbell, Managing Partner, Middle East

scott campbell

UAE highlights in 2019

Positive List

The UAE announced the “Positive List” activities, which clarifies the types of sectors open to greater foreign investment.

DIFC New Framework

The DIFC introduced a new framework for companies, with new laws and regulations governing companies, restructuring and insolvency and employment.

FinTech Ecosystem

The ADGM introduced regulations to support the FinTech ecosystem.

Significant legal and regulatory events in 2019

Explore the tabs below to review the key developments you need to be aware of from 2019

ADGM

Regulatory guidance for digital securities: In September the ADGM’s Financial Services Regulatory Authority (FSRA) became the first regulator in the Middle East region to introduce guidance on digital securities. The Guidance for Digital Securities Activity in the ADGM sets out the FSRA’s approach to the regulation of digital securities in the ADGM for both primary and secondary markets, including in relation to offers, listings and market infrastructure, including exchanges. The guidance, issued under the Financial Services and Markets Regulations 2015, supplements the cryptoasset regulatory regime and the FSRA's Guidance on Initial Coin/Token Offerings and Crypto Assets.

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Guidance to support API ecosystem: In October, the FSRA issued guidance on the development and use of Application Programming Interfaces (APIs) in the ADGM to promote a common set of technology and data standards for the use of APIs in the financial services sector, to enable different systems to connect and share data securely. This is valuable for banks and FinTech firms (such as those participating in the ADGM’s Digital Sandbox) to facilitate open innovations using API architecture, which can enable them to deliver better services to the end customer. Increasingly, regulators are looking to develop and implement regional “open banking” standards to promote interoperability and innovation.

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New ADGM Arbitration Centre Guidelines: New guidelines published by the Abu Dhabi Global Market Arbitration Centre (ADGMAC) provide parties and tribunals with a set of practical, best practice procedures that they can use in their arbitral proceedings, regardless of the seat, the applicable institution rules or the law governing the arbitration procedure. Published in September, the guidelines address submissions, evidence, hearings and the conduct of counsel and aim to ensure proceedings are carried out fairly and efficiently, particularly where parties from different legal systems are involved. Parties can choose to adopt the guidelines, in whole or in part, at any time. The ADGMAC opened in October 2018.

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DIFC

Companies regime transition period ends: Companies doing business in the DIFC must now be fully compliant with the new regime set out in the new Companies Law 2019 (DIFC Law No.5 of 2018), Companies Regulations, Operating Law (DIFC Law No.5 of 2018), Companies Regulations, Operating Law (DIFC Law No.7 of 2018), Operating Regulations and Ultimate Beneficial Owner Regulations. The one-year transitional period ended on 12 November. There were a number of practical changes for DIFC companies to make, such as updating their Articles of Association, updating the company name on their letterhead and websites (to reflect the new company classification system), maintaining new registers of ultimate beneficial owners, nominee directors and debentures and updating their internal policies to reflect the more extensive directors’ duties.

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A modernised insolvency regime: Distressed DIFC companies can use the procedures set out in the new Insolvency Law (DIFC Law No.1 of 2019) and the Insolvency Regulations. Two new procedures – rehabilitation and administration – enable the rescue of financially troubled businesses through a court-approved plan agreed between the company, its creditors and shareholders (something that the previous regime lacked). Rehabilitation allows a standstill on the enforcement of claims, the ability to obtain “debtor in possession” finance on a priority basis and a way to cram-down dissenting minority creditors. In an administration, the rehabilitation process is managed by an administrator if there is evidence of misconduct. Companies can still use voluntary arrangement, receivership and winding-up procedures, which remain mostly unchanged. Cross-border insolvencies should be easier to manage as the new regime incorporates aspects of the UNCITRAL 1997 Model Law on Cross-Border Insolvency.

Employment law reform: Under the DIFC’s new Employment Law (DIFC Law No.2 of 2019), employees in the DIFC can now benefit from more progressive rules, including those relating to part-time employees, parental leave, sick leave payments, discrimination, gratuity payments, sponsorship costs and settlement agreements. Employers in the DIFC should update contractual arrangements and internal policies where necessary.

New financial collateral regime and revisions to registering security: The DIFC has established a new creditor-friendly legal regime relating to financial collateral in the DIFC, including cash and securities collateral, under both security interest and title transfer arrangements. The Financial Collateral Regulations clarify the scope, operation, priority and enforcement of security over financial collateral, modifying and supplementing the Law of Security (DIFC Law No.8 of 2005) for financial collateral assets. Creditors can benefit from rights of use and self-help enforcement remedies, which can be used even in the event of the insolvency of a counterparty (including under the DIFC Insolvency Law (DIFC Law No.1 of 2019) or similar procedures in another jurisdiction). The procedure for registering security over financial collateral is set out in revised Security Regulations. The Security Regulations revise the financing statements to be filed with the DIFC Registrar of Securities and also introduce a simplified, flat fee structure for filings. The new regime came in to force with effect from 30 September.

Protecting IP rights in the DIFC: A new law regulates intellectual property (IP) rights in the DIFC for the first time. DIFC Law No.4 of 2019 was enacted in November and complements Federal IP laws. The primary impact of the new law is that IP rights protected with the registries onshore in the UAE, such as patents, copyright and trademarks, are recognised as valid and enforceable in the DIFC. Owners of those rights can take action to protect and enforce their rights in the DIFC. The DIFC IP law does not create any new IP registries and so IP rights cannot be registered directly in the DIFC. A new Commissioner of IP will oversee the operation of the new regime and administer penalties for infringements of IP rights, including fines, the confiscation of property, suspension or revocation of a company’s licence and damages. In contrast to the UAE position, the DIFC regime confirms that IP created by employees in the course of their employment is presumed to be owned by the employer. IP rights are increasingly becoming the most important intangible assets of any business, especially in the FinTech sector. This should be a welcome development especially for companies participating in the DIFC’s FinTech accelerator, FinTech Hive.

UAE

Foreign investment “Positive List” announced: Foreign investors will be able to own a greater share in UAE companies operating in the 122 economic activities on the “Positive List”, which is grouped into three broad sectors: agriculture, manufacturing and services. It includes service industries such as construction and healthcare, mainstream manufacturing and agricultural activities (such as food cultivation and plastics manufacturing) as well as activities in newer and greener industries, plus tech-focused activities such as computer programming and holding company activities in intellectual property. The Positive List was published by the UAE Cabinet in July, pursuant to the new foreign investment regime set out in Federal Law No.19 of 2018. Companies wishing to invest must comply with conditions to investment and licensing requirements. Further Emirate-level regulations are expected to determine the permitted ownership percentage (which will be between 50-100%).

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Passporting investment funds across the UAE and free zones: Funds should be more easily promoted across the UAE and the financial free zones, the DIFC and the ADGM, without the need for additional licensing, following a new protocol regarding the marketing and selling of domestic funds to potential investors that was agreed between the Securities and Commodities Authority (SCA) in the UAE, the Financial Services Regulatory Authority (FSRA) in the ADGM or the Dubai Financial Services Authority (DFSA) in the DIFC.

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Specialised committees to resolve insurance disputes: Specialist committees will resolve retail and commercial insurance disputes resulting from complaints against insurers, according to Decision No.33 of 2019 relating to the regulation of Insurance Disputes Resolution Committees, made under the UAE Insurance Law (Federal Law No.6 of 2007). The process of resolving these kinds of disputes should be quicker and easier as a result.

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Data protection modernisation and the internet of things: The UAE Telecommunications Regulatory Authority (TRA) issued a new Internet of Things (IoT) regulatory framework. It regulates the provision of IoT services in the UAE by individuals, companies and public authorities, whether they are located in the UAE or are outside the UAE. New data protection provisions draw on international best practice (specifically the General Data Protection Regulation 2016/679 in the European Union (EU)), placing stricter obligations on those processing and controlling personal data.

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Modernised governance rules for UAE public companies: New rules allow UAE public joint stock companies (PJSCs) to use technology to streamline governance procedures. For example, shareholders can attend and vote in general meetings electronically and PJSCs can call general meetings using text messages or emails. PJSCs will need to amend their Articles of Association to be able to take advantage of these new procedures, which are set out in SCA Resolution No.(3/RM) of 2019 amending Resolution No.(7/RM) of 2016 concerning Standards of Institutional Discipline and Governance in Public Joint Stock Companies. The rules also enhance rules on insider trading, directors’ conflicts of interests and independence.

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SCA amends Regulations on Trading, Clearing, Settlement, Transfer of Ownership and Custody of Securities: In June, the SCA amended provisions regulating the dates and mechanisms of settlement in trading in the financial markets. Clearing houses now have greater flexibility to set the procedure and the time required to pay amounts owed to the broker or clearing member in sale and purchase transactions. The changes are set out in SCA Resolution No.(28/T.M) of 2019, Amending SCA Resolution No.(2) of 2001 Regarding the Regulations on Trading, Clearance, Settlements, Transfer of Title, and Retention of Securities. This development may help to prepare the UAE market for a possible future upgrade from Emerging Market status to Developed Market status on the MSCI Indices, the global indices tracked by investors.

Quicker enforcement process for foreign court judgments and arbitral awards: Enforcing foreign court judgments and arbitral awards in the UAE should now be quicker and cheaper. According to UAE Cabinet Resolution No.57 of 2018 concerning the Executive Regulations of Federal Law No.11 of 1992, enforcement applications are made directly to the enforcement judge, who decides whether the conditions to enforce are met within three days. An enforcement order is then immediately enforceable.

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UAE highlights in 2020

Foreign Investment

The Emirates are expected to announce the permitted levels of foreign investment in local companies engaged in activities on the Positive List, enabling foreign controlling interests in UAE companies for the first time.

DIFC Priorities

The DIFC is preparing to regulate intellectual property rights for the first time and to strengthen data protection rights.

FinTech Collaboration

Greater regional collaboration in FinTech is proposed.

Significant legal and regulatory events in 2020

Explore the tabs below to review the key developments we expect to see in 2020

ADGM

Anticipated developments: Further reforms to the ADGM’s regulations promise to adopt best practice emerging from the latest global developments, as the ADGM continues its efforts to position itself as a progressive, international financial centre. We expect that the adoption of legislative measures in the course of 2020 will continue to drive activity in the ADGM, especially in the FinTech space. In the coming year, we may see the first examples of licensing of entities under the new cryptoasset regulatory regime.

Read more

Regional FinTech collaboration: We expect increased momentum behind efforts to drive the FinTech industry in the Gulf Cooperation Council (GCC), to support the diversification of regional economies. Increased collaboration is expected to materialise following the first GCC FinTech Roundtable and Summit in September in Riyadh, attended by FinTech Saudi, the ADGM, Bahrain FinTech Bay and DIFC FinTech Hive (the four largest FinTech hubs in the Gulf region). Areas of collaboration may include data sharing, open banking and strategies to support FinTech companies to scale (for example, through the DIFC’s FinTech Hive and the ADGM’s RegLab and Digital Sandbox).

DIFC

Protecting IP rights in the DIFC: A new law regulates intellectual property (IP) rights in the DIFC for the first time. DIFC Law No.4 of 2019 was enacted in November and complements Federal IP laws. The primary impact of the new law is that IP rights protected with the registries onshore in the UAE, such as patents, copyright and trademarks, are recognised as valid and enforceable in the DIFC. Owners of those rights can take action to protect and enforce their rights in the DIFC. The DIFC IP law does not create any new IP registries and so IP rights cannot be registered directly in the DIFC. A new Commissioner of IP will oversee the operation of the new regime and administer penalties for infringements of IP rights, including fines, the confiscation of property, suspension or revocation of a company’s licence and damages. In contrast to the UAE position, the DIFC regime confirms that IP created by employees in the course of their employment is presumed to be owned by the employer. IP rights are increasingly becoming the most important intangible assets of any business, especially in the FinTech sector. This should be a welcome development especially for companies participating in the DIFC’s FinTech accelerator, FinTech Hive.

Data protection law to align with global developments: The DIFC is expected to update its data protection regime to adopt best practice emerging from the latest global developments. We expect the revised law to more closely align with the General Data Protection Regulation (GDPR) in the EU, following a consultation which ended in August. The existing regime, set out in the DIFC Data Protection Law (Law No.1 of 2007) and related regulations, was aligned with the pre-GDPR EU regime. We expect stricter obligations on those processing personal data, stronger individuals’ rights over their data and updated rules on when personal data can be transferred outside the DIFC.

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UAE

Thresholds for foreign investment to be announced: The Emirates are expected to issue regulations specifying the levels of foreign investment permitted in the share capital of UAE companies engaged in activities on the Positive List, ranging from 50% up to 100%. It is not clear how soon the regulations may be expected or whether the approach across the Emirates will be consistent. It is possible that there may be different levels of foreign investment for the same activity in different Emirates. Once the regulations are in force, foreign investors will be able to gain majority control over the UAE companies in which they invest for the first time, subject to Federal Law No.19 of 2018 regarding foreign direct investment.

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UAE Central Bank to enhance reporting of non-performing loans: The UAE Central Bank plans to enhance reporting of non-performing loans (NPLs) for UAE banks and branches of foreign banks operating in the UAE. New regulations are expected to align the UAE regulation of NPLs more closely with international best practices.

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UAE and Saudi Arabia plan new cryptocurrency: The UAE is preparing to launch a new common cryptocurrency, known as Aber, in collaboration with Saudi Arabia. The plan was announced in January, but no launch date has been set. In its pilot phase, the use of the new cryptocurrency is expected to be restricted to financial settlements using blockchain technology by the Central Banks and a small number of banks in each of the UAE and Saudi Arabia.

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DFSA to tighten Professional Client rules: The Dubai Financial Services Authority (DFSA), which regulates financial services conducted in or from the DIFC, has consulted on revisions to the rules on the suitability assessment of financial products for “professional clients” by DFSA-Authorised Firms. The revisions proposed in Consultation Paper No.127 of 2019 in August draw on international suitability regimes, including the practices adopted in EU jurisdictions based on Markets in Financial Instruments Directive 2014 (MiFID II).

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Onshore listing for UAE free zone companies: The SCA is expected to set out the requirements for public limited companies incorporated in a free zone to offer shares onshore in the UAE. The requirements are to be enacted by way of amendments to SCA Resolution No.11/R.M of 2016 Concerning the Regulation of the Offering and Issuance of Stocks of the Public Joint Stock Companies. It is expected that the free zone company must meet all onshore listing requirements, plus provide a no-objection certificate from the regulatory body in the relevant free zone and restrict the offering to Qualified Investors only.

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Dual listings in Abu Dhabi and Saudi Arabia: 2020 may see the first dual listings of securities on the Abu Dhabi Securities Exchange (ADX) and the Saudi Arabian exchange, the Tadawul, following a Memorandum of Understanding agreed between the relevant regulators in 2019.

Cryptoassets to be regulated for the first time: The SCA intends to introduce a new framework to regulate cryptoasset activities, including promoting, offering and issuing cryptoassets and cryptoasset activities undertaken by exchanges, custodians and other intermediaries in the UAE (outside the DIFC and the ADGM). The draft Regulation for issuing and offering CryptoAssets, which was launched for consultation in October, also includes provisions designed to protect against market abuse and financial crime, and requires that industry best international standards are adopted in the use of technology dealing with cryptoassets (including relating to cyber security and data protection). The ADGM has already issued regulations on crypto asset activities conducted in or from the ADGM, and it was the first regulator in the MENA region to do so (read more). The DIFC does not currently regulate cryptoassets offerings or activities, and the Dubai Financial Services Authority (DFSA) has issued an investor warning stating that tokens should be treated as “high-risk investments”. Regionally, the Central Bank of Bahrain (CBB) was the first Middle East regional regulator to approve a cryptocurrency exchange under its cryptoasset regulatory framework (read more). You can read more about ICOs in Linklaters client note - A Global View of Initial Coin Offerings (ICOs) and Regulation.

Important note: This publication highlights certain key developments in the laws and regulations in the UAE. The legislative process in the UAE can be opaque. Draft legislation is generally not made publicly available nor the subject of official consultations. Timescales for enactment of legislation are not typically published. In practice, laws and regulations may come into effect without being published. Accordingly, it is difficult to anticipate the pace and scope of legislative change.

 

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