Following the relaxation of foreign investment rules in 2020, the Federal and Emirate governments may introduce further regulations elaborating on the new regime, with specific requirements expected for companies engaged in strategically important activities.
Securities and Commodities Authority Rulebook:
The SCA is planning to introduce a Rulebook for the first time. The draft Rulebook, which the SCA consulted on in July, contains rules dealing with the licensing of financial activities and approved functions, and conduct of business. It consolidates a range of rules currently existing in a series of regulations issued by the SCA.
Single financial services regulator:
The SCA and the Insurance Authority in the UAE are set to merge. The supervision of insurance activities and other financial services activities, such as investment management and advisory activities, will be carried out by a single regulator.
Licensing regime for financial activities:
The SCA is proposing to streamline its licensing and regulatory framework for financial services and markets activities, with five new licensing categories.
Issuing and offering Islamic securities:
Changes to the SCA’s Decision No.(20/R.M) of 2018 on Issuing and Offering Islamic Securities are proposed to bring the regime in line with international standards set by the International Organization of Securities Commissions (IOSCO).
ESG and sustainability:
We expect to see continued progress towards the UAE’s sustainability objectives. Sustainable finance will be a particular focus for regulatory authorities, who will play a role in facilitating the UAE’s transition to a more sustainable economy. Among a range of strategies and initiatives during 2020, the Dubai Financial Market launched a new UAE Index for Environment, Social and Governance (ESG) Read more..., the Abu Dhabi Exchange (ADX) issued its Sustainability Report, the ADGM and the Ministry of Climate Change and Environment launched the State of Sustainable Finance Report, and the SCA Guide to Institutional Discipline Standards and Governance of Public Joint-Stock Companies requires adherence to ESG and sustainability principles.
Interest rate reform:
2021 will see banks and financial institutions transition away from the London Interbank Offered Rate (LIBOR) and other IBORs and towards other alternative solutions, known as Alternative Reference Rates (ARR). Banks, asset managers and corporates across the UAE who are likely to be affected by the change will need to prepare and plan for how to make an orderly transition (as noted, for example, in the DFSA’s SEO Letter and Markets Brief on the Transition from IBOR). Future changes to the Emirates Interbank Offered Rate (EIBOR), administered by the UAE Central Bank, are anticipated.
UAE Bankruptcy Law:
Amendments to the UAE Bankruptcy Law (Federal Decree No. 9 of 2016) may come into force, once a proposed amending law has been published in the Official Gazette. The main purpose of the reform is to support viable businesses which are experiencing financial difficulty in the context of an “Emergency Financial Crisis”, described as a situation which affects trade and investment in the UAE and which expressly includes a pandemic (although ultimately, the right to determine whether an Emergency Financial Crisis exists and its duration rests with the UAE Cabinet).
Debtors can, but do not have to, file for bankruptcy where insolvency results from an Emergency Financial Crisis. Debtors who enter bankruptcy proceedings have a 40-business day window to agree a settlement with their creditors (crucially, this allows for a cram-down of minority dissenting creditors). During an Emergency Financial Crisis, debtors may also seek new financing and directors may pay their employees, provided, in doing so, they act prudently and in good faith in the best interests of the debtor. No other insolvency applications can be filed against a debtor where its inability to pay is due to the financial effects of an Emergency Financial Crisis Covid-19 on its business.
Other proposals include adjusted timescales for the automatic standstill, and stricter conditions for court approval to enforcement by secured creditors during the standstill, in the context of preventive composition and restructuring proceedings. The proposed law clarifies that secured creditors will have priority over preferential creditors – which will no doubt be a welcome development for secured creditors. The UAE court also has the discretion to extend time periods prescribed under the bankruptcy regime for ongoing proceedings, where a debtor’s financial difficulties arise from an Emergency Financial Crisis. It is not clear when the amendments to the Bankruptcy Law will come into force.