UAE: What happened in 2020 and significant events in 2021

United Arab Emirates Law: Year in Review 2020 and Year to Come 2021 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.

Explore our overview of key developments below.

Updates in

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key areas in 2020 and 2021

“While much of 2020 has been dominated by measures to support UAE businesses during the Covid-19 pandemic, we have also seen important legal and regulatory developments in other areas. Key developments affect companies and corporate governance, foreign investment, financial regulation and enforcement procedures, evidencing the UAE’s continued drive to support the diversification of the UAE economy and the sophistication of the legal framework.”

Scott Campbell, Managing Partner, Middle East

scott campbell

UAE highlights in 2020

Foreign investment

Restrictions on foreign investment in UAE companies are to be removed, allowing 100% ownership by foreign investors.

Covid-19 relief measures

The UAE, DIFC and ADGM introduced measures to support businesses affected by the Covid-19 pandemic.

Companies law

The ADGM and the DMCC introduced new regulations for companies in those free zones, and the UAE revised the Federal companies law.

Significant legal and regulatory events in 2020

2020 has seen the Federal and Emirate governments and regulators across the United Arab Emirates (UAE), the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) mobilise their efforts to protect the business community from the impact of the Covid-19 pandemic. Regulators have retained momentum during the pandemic – continuing to progress important reforms and efforts to align local regimes with international standards.

Explore the tabs below to find out more.

ADGM

Covid-19 relief measures: The ADGM Financial Services Regulatory Authority (FSRA) offered temporary relief for ADGM regulated entities through reductions or waivers of fees and extensions to filing deadlines until 31 December 2020.

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Founding Law revised: Abu Dhabi Law No.12 of 2020 introduced changes to the ADGM’s Founding Law (Abu Dhabi Law No.4 of 2013). The revised law clarifies that parties can opt-in to the jurisdiction of the ADGM Courts and codifies the framework for the reciprocal enforcement of judgments, orders and awards between the ADGM Courts and the Abu Dhabi Courts (and other national courts).

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New Companies Regulations: The ADGM Companies Regulations 2020 replaced and repealed the Companies Regulations 2015 in April, introducing some important changes for ADGM companies and limited liability partnerships. Read more... The Companies Regulations 2020 were then amended later in the year to grant greater powers to the ADGM Registrar.

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Foreign arbitral award recognised: The ADGM Courts ordered the recognition and enforcement of a foreign arbitral award for the first time, in accordance with the New York Convention 1958 and applying the ADGM Arbitration Regulations 2015, in the case of A4 v B4.

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ISDA opinions on collateral arrangements: The International Swaps and Derivatives Association (ISDA) published two new legal opinions on the validity and enforceability of collateral arrangements under ISDA Credit Support Agreements within the ADGM. The opinions are the first such opinions to be issued by ISDA for a Gulf jurisdiction.

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Revised prudential rules: The FSRA introduced a revised prudential framework. Regulated firms must have a robust liquidity risk management framework more closely aligned with the Basel III liquidity standards.

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Crypto-asset regulation: The FSRA has changed how it regulates crypto-asset activities conducted in or from the ADGM. The term “Virtual Assets” is now used to describe crypto-assets and specified activities related to Virtual Assets are regulated within existing categories of activities.

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DIFC

Covid-19 relief measures and Business Stimulus Initiative: The DIFC introduced short-term measures between April and June to help companies in the DIFC deal with the immediate challenges presented by the Covid-19 pandemic, with changes to fees and filing rules. Employment arrangements and the rules on wrongful trading for directors were adjusted until the end of July.

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Payment services regulation: The Dubai Financial Services Authority (DFSA) introduced a series of updates to its Rulebook modules to revise its regime for “Providing Money Services” in the DIFC. Under the new regime, “Arranging and Advising on Money Services” is regulated as a new type of financial service and a wider range of payment services activities are permitted.

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SME listing: Small and medium-sized entities (SMEs) can now list their shares on NASDAQ Dubai and the Dubai Mercantile Exchange under a new regulatory regime. The regime introduces lighter touch standards for SMEs than under the existing DFSA regime.

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Suitability requirements for Professional Clients: The DFSA introduced revised rules on suitability assessments of financial products for “Professional Clients”. It is no longer possible for Authorised Firms to not carry out any suitability assessment at all and limited suitability assessments are restricted. Many changes are to align with the European Union’s Markets in Financial Instruments Directive 2014 (MiFID II).

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Prescribed Company regime: The DIFC has expanded the scope of the Prescribed Company regime. Family businesses with a presence in the UAE can now apply to establish a Prescribed Company in the DIFC for the purposes of certain types of business activities, without having a presence in the DIFC.

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DIFC Court refuses to enforce Dubai Court decision: The DIFC Court refused to recognise and enforce an order issued by the Dubai Courts for the first time in the case of YYY Limited v ZZZ Limited [DIFC] 2017 ARB 0051. One of the key points to note from the judgment is that only money judgments (and not declaratory judgments) issued by the Dubai Courts are automatically recognised by the DIFC Courts under the reciprocal enforcement arrangements between the two courts.

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New DIFC start-up accelerator: The DIFC’s FinTech Hive established a new Scale Up accelerator programme for regional FinTech start-up companies.

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DIFC Innovation Licence: A new DIFC Innovation Licence became available for start-ups and entrepreneurs aiming to disrupt the technology and financial sectors.

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Data protection: The DIFC Data Protection Law No.5 of 2020 and new Data Protection Regulations came into force in July. DIFC companies were required to comply with the new regime by October. Aspects of the new framework draw on the European Union’s General Data Protection Regulation.

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UAE

Foreign investment restrictions removed: Significant amendments were announced to the Commercial Companies Law (Federal Law No.2 of 2015) in November, removing the long-standing restriction which required a UAE company to have not less than 51 per cent. of its share capital owned by UAE nationals. This will allow foreign investors to wholly own UAE companies. The interplay with the relatively new Foreign Direct Investment (FDI) law (Federal Law No.19 of 2018) is unclear, but it is expected that the revised Commercial Companies Law will supersede the FDI Law. The FDI Law allowed companies engaged in commercial activities on the “Positive List” to be eligible for up to 100 per cent. foreign ownership. The UAE Cabinet of Ministers issued a resolution in March formally adopting the Positive List and the Abu Dhabi Department of Economic Development opened applications for FDI Licences in October.

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Local authorities may, however, impose national ownership requirements for companies and nationality requirements for board members at an Emirate level. Specific licensing conditions are expected for companies engaged in strategically important activities.

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Federal business support measures: The UAE Central Bank introduced the Targeted Economic Support Scheme (TESS) to support UAE businesses affected by the Covid-19 pandemic, which was extended until June 2021. The governments of Abu Dhabi and Dubai also implemented financial stimulus and support packages. The Securities and Commodities Authority (SCA) issued circulars to listed public joint-stock companies to facilitate electronic attendance and voting and business continuity planning.

Read more here, here and here...

IFRS 9 expected loss provisions for banks: Joint guidance issued for banks and financial institutions in the UAE, the DIFC and the ADGM on the treatment of International Financial Reporting Standard 9 (IFRS 9) expected credit loss provisions set out temporary adjustments to the way the credit risk of financial instruments is assessed.

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Corporate governance for public companies: The SCA adopted a new Guide to Institutional Discipline Standards and Governance of Public Joint-Stock Companies in February. UAE public companies must comply with the new corporate governance guidelines by the end of 2020. The guidelines include provisions ranging from criteria for board members to corporate social responsibility.

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Commercial agency: An amendment to the commercial agencies law allows UAE companies which are partially owned by foreign investors to act as commercial agents for the first time (Federal Law No. 11 of 2020 amending Federal Law No.18 of 1981). Previously, only a UAE national or a company wholly owned by UAE nationals could be a commercial agent. Branches of foreign companies may not need a local agent once revisions to the Commercial Companies Law are in force.

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Dubai Court judgment enforced in England: The English High Court recognised and enforced a judgment of the Dubai Courts in Lenkor Energy Trading DMCC v Irfan Iqbal Puri [2020] EWHC 75. The case was decided on common law principles, as there is no enforcement treaty between the UAE and the United Kingdom.

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New DMCC Companies Regulations: The Dubai Multi Commodities Centre (DMCC) adopted the Companies Regulations 2020. Companies need to comply with the new regulations within a two-year grace period.

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UAE highlights in 2021

Foreign investment

2021 is likely to see further developments in the UAE foreign investment regime.

Bankruptcy reform

Reforms are expected to support viable businesses in the UAE which are experiencing financial difficulty in the context of an “Emergency Financial Crisis”.

Recovery regime for DIFC banks

The DIFC may enact a new recovery and resolution regime for certain banks and financial institutions in the DIFC.

Significant legal and regulatory events in 2021

The pace of regulatory and legal change shows no sign of slowing in 2021. Across the UAE, DIFC and ADGM, legislators and regulators are expected introduce further reforms in line with their objectives: to improve the ease of doing business and to align local rules with international standards. FinTech and sustainability initiatives are likely to continue to be a key focus.

Review the key developments you need to be aware of in 2021.

ADGM

Providing Money Services: The FSRA consulted on proposed amendments to the regulatory framework for Authorised Persons undertaking the regulated activity of “Providing Money Services”. The proposed amendments are designed to bring the regime up to date with evolving technologies and the emergence of new business models and methods for the transfer of funds.

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Electronic transactions: The ADGM is proposing to introduce a new regime to facilitate electronic transactions, electronic records and electronic signatures and authentication technologies. Recognising the increasing prevalence of electronic transactions, the draft Electronic Transactions Regulations aim to ensure equivalent treatment for users of paper-based documentation and users of electronic information.

DIFC

Financial institution recovery regime: The DIFC is proposing to enact a new recovery and resolution regime for certain DIFC financial institutions carrying out activities raising substantial systemic risks, and which experience financial difficulty. The proposed regime is based on international best practice, and draws specifically on the Financial Stability Board’s (a body created and mandated by the G-20) “Key Attributes on Effective Resolution Regimes for Financial Institutions” and related guidelines, together with the Basel Committee on Banking Supervision’s Guidelines for identifying and dealing with weak banks.

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Large exposures: The DFSA may update its prudential regime relating to large exposures of financial institutions regulated by the DFSA during 2021. The proposed revisions to the regime, on which the DFSA consulted in late 2020, are principally to align the DIFC regime to the standards and recommendations set out by the Basel Committee on Banking Supervision in Basel III.

UAE

Foreign investment: 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.

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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.

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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.

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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).

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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.

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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.

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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.

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Year in Review 2020 and Year to Come 2021 - UAE law




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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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