GCC Quarterly Review - Q1 2021
The first quarter of 2021 saw a number of legal developments in the Gulf Cooperation Council (GCC) region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). Our GCC Quarterly Review – Q1 2021 summarises a selection of the major developments in that period, with links to further reading where available.
Download the PDF version (6 pages) or read online below.
New data protection regulations
Enhanced data protection regulations came into force in the Abu Dhabi Global Market (the “ADGM”) in February 2021. ADGM companies have a transition period to ensure compliance (12 months for existing entities and 6 months for new entities, in each case from 14 February 2021). The Data Protection Regulations 2021 replace the previous 2015 regulations and draw on aspects of the European Union’s General Data Protection Regulation (EU Regulation 2016/679) (known as GDPR). A new Office of Data Protection (“ODP”) has been established, headed by a newly appointed Commissioner of Data Protection. The ODP has joined the Global Privacy Assembly’s International Enforcement Cooperation Working Group, the global forum for data protection and privacy authorities to facilitate cross-border cooperation and enforcement.
New electronic transactions regulations
New Electronic Transactions Regulations 2021 are now in force in the ADGM. The new regulations facilitate electronic transactions and the use of digital technologies, by confirming that electronic signatures, contracts, records and documents are legally enforceable in the ADGM in the same way as physical signatures and paper-based documentation. The regulations are based on the United Nations Commission on International Trade Law Model Laws on Electronic Commerce.
DIFC-LCIA Arbitration Centre adopts new rules
The DIFC-LCIA Arbitration Centre in the Dubai International Financial Centre (the “DIFC”) has adopted a new 2021 update to its arbitration rules. The Arbitration Rules 2021, which replace the previous rules adopted in 2016, largely reflect the latest LCIA Arbitration Rules adopted in October 2020.
The new rules refine the provisions of the previous rules and more explicitly address issues of contemporary arbitration best practice. For example, the new rules facilitate virtual hearings and provide for electronic communications as the default means of transmission for written communications and submissions in relation to arbitration proceedings. You can read more about the new LCIA Rules in our quick guide on our ArbitrationLinks blog (Read more…).
DIFC Court issues declaratory judgment on the subject of trusts
The DIFC Court of Appeal has issued a declaratory judgment on its interpretation of provisions the DIFC Trust Law (DIFC Law No.4 of 2018) and the DIFC Foundations Law (DIFC Law No.3 of 2018), following an application by the Chief Legal Officer of the DIFC Authority (Claim No: CA-002-2020). Key points to note from the judgment include:
- the common law of trusts and principles of equity supplement the DIFC Trust Law, and this includes, but it is not limited to, the common law of trusts and principles of equity under English law. Whilst the DIFC Court will place great weight on the jurisprudence of the Courts of England and Wales in determining the content of the common law of trusts and principles of equity, the DIFC Court may also have regard to the jurisprudence of other significant common law jurisdictions. The DIFC Court has the authority to develop the common law of trusts and principles of equity in the same way that other common law courts might do on a case-by-case basis;
- trust property can include property located in a foreign jurisdiction which does not recognise trusts; and
- a DIFC Foundation may hold property (other than property of the Foundation as defined in the DIFC Foundations Law) in trust under the DIFC Trust Law.
DIFC launches Courts of Space initiative
The DIFC Courts and the Dubai Future Foundation have announced a global initiative to establish Courts of Space, an innovative judicial system to resolve disputes arising under complex commercial agreements in the space sector. An international working group of public and private sector bodies and experts plans to develop guidelines for resolving space-related disputes and create a training program for judges.
Consultation on changes to the data protection and insolvency regimes
Proposed changes to the Data Protection Law (DIFC Law No.5 of 2020) are intended to support the exercise of rights of data subjects, for example, by requiring businesses to keep a register of instances where they extend the period for compliance with a data request, charge a fee or refuse to act on the request in cases of complex, numerous or vexatious requests to access data. Other proposed changes clarify that the powers of the Data Protection Commissioner to determine a contravention of the Data Protection Law and impose sanctions, and issues relating to court proceedings.
Bonding arrangements set out in the Insolvency Regulations may be adjusted, to recognise the current lack of bond providers in the UAE offering bonds for use by insolvency practitioners in the DIFC. If enacted, it would no longer be a requirement for insolvency practitioners to take out a bond to provide appropriate levels of security to cover any losses as a result of fraud or dishonesty on their part. Minor changes to the Insolvency Law (DIFC Law No.1 of 2019) are also proposed.
These proposals are set out in Consultation Paper No.2 of 2021.
Proposed amendments to employment regime
The DIFC is proposing to introduce changes to the Employment Law (DIFC Law No.2 of 2019) and the Employment Regulations. According to Consultation Paper No.1 of 2021, provisions relating to “Qualifying Scheme” savings regimes for employee’s end of service benefits are to be clarified and aligned with the Employee Money Purchase rules issued by the Dubai Financial Services Authority (“DFSA”) (to which changes are also proposed in the DFSA’s Consultation Paper No.137).
New UAE trusts law
The UAE’s new trust law, Federal Law No.19 of 2020 on trusts, for the first time enables a trust to be created that allows for the separation of legal and beneficial ownership rights in assets and the establishment of trust relationships in the UAE. This represents a significant change in law, as previously UAE law did not recognise the concept of a trust as commonly understood in common law jurisdictions and there was legal uncertainty as to how a UAE court would interpret and apply trust arrangements. The law applies onshore in the UAE and not in the DIFC or ADGM, as separate trust rules apply in those jurisdictions.
The law provides a new legal framework for assets (which may comprise moveable assets and immovable assets, including real estate) to be held using a trust structure, for a private or charitable purpose. The trust itself has separate legal personality under UAE law. Private trusts are expressly permitted, including for the purpose of dealing in securities. Where trust property includes real estate or moveable assets, dispositions of which must be registered in other registers in the UAE, an endorsement indicating that the property is held subject to a trust on the relevant register is required. The trust instrument must meet specific requirements (including that it must state the purpose of the trust and clearly identify the trust property and the beneficiary), it must be in writing or electronic form, and it must be registered electronically in a new register (to be established by the Cabinet). The trust instrument must be in the Arabic language, or if in another language, it must be translated into Arabic. Once registered, the registry will issue an official certificate of registration. The register will not be publicly searchable. The new trust law will also apply to foreign law governed trusts created in the UAE in certain circumstances, including where there is a conflict between a provision of a foreign law governed trust and UAE law or public order.
The availability of the trust structure is likely to be welcomed as facilitating certainty around the use of trusts in the UAE by international and national companies, family-owned businesses, investment funds and investors in the context of a range of transactions, including financial transactions involving security agency structures or holding assets owned by family businesses.
New SCA rules enable free zone companies to list shares on onshore exchanges
Revised rules now enable free zone companies to offer their shares to the public in an Initial Public Offering (“IPO”), if certain requirements are met. Conditions include that a company must have a minimum capital of AED 20 million, two years of audited financial statements and two years of net profits. This means that companies incorporated in the DIFC or ADGM, for example, may now list their shares on the Dubai Financial Market or Abu Dhabi Securities Exchange. Securities and Commodities Authority (“SCA”) Resolution No.25/RM of 2020 amends SCA Resolution No.11/RM of 2016 on the Regulation of Offering and Issuance of Shares of Joint Stock Companies.
New UAE Central Bank regulations regarding payment systems
The UAE Central Bank has issued Circular No.9 of 2021, Concerning the Large Value Payment Systems (“LVPS”) Regulations to regulate financial infrastructure systems whose proper functioning is important to the monetary or financial stability in the UAE. Operating an LVPS in the UAE requires a license from the Central Bank. The regulation sets out the criteria and process for designating an LVPS as systemically important financial infrastructure system, as well as the circumstances in which the Central Bank may revoke a license or designation. LVPSs must comply with the relevant regulations issued by the Central Bank, oversight requirements and adhere to the Principles of Financial Market Infrastructures Requirements issued by The Committee on Payment and Market Infrastructures and the Technical Committee of the International Organization of Securities Commissions. There is a one-year transitional period for LVPSs to comply. Central Bank Circular No. 10 of 2021, Concerning the Retail Payment Systems (“RPS”) Regulations to regulate systemically important RPSs. The regulation sets out the licensing, designation and oversight framework that the Central Bank intends to follow with respect to the licensing, designation of and oversight of RPS.
Dubai decree requires public companies to list shares locally
Public joint stock companies (“PJSCs”) incorporated in Dubai are now mandatorily required to list their shares in Dubai, on the Dubai Financial Market or NASDAQ Dubai, according to Dubai Decree No.3 of 2021. The decree applies to public companies incorporated in the DIFC and other free zones in Dubai, as well as onshore Dubai PJSCs. PJSCs incorporated in the UAE, in an Emirate other than Dubai, which have branches, assets or activities in Dubai must also list their shares in Dubai if more than 50 per cent of their annual profits is generated from business activities in Dubai or more than 50 per cent of their assets are located there. Dubai Decree No. 3 of 2021 does not specify the percentage of a company’s shares to be listed and it does not restrict companies from seeking dual listing on a foreign exchange. Foreign companies which have branches, assets or activities in Dubai can list their shares in Dubai as either a primary or secondary listing. The decree came into force in February 2021 and there is a one-year grace period for compliance. This means that companies that fall within the scope of the law and are currently listed abroad will need to list in Dubai before the end of January 2022.
Anti-concealment law compliance grace period
Businesses in Saudi Arabia in which foreign nationals and companies have invested, despite restrictions on investing or engaging in such businesses under the Kingdom’s foreign investment regime, have a six-month grace period (which ends in August 2021) to adjust their position to comply with Saudi Arabian laws. This follows the enactment of the Anti-Commercial Concealment Law (Cabinet Decision No.785/1441 On the Approval of the Anti-Cover Law) to address business licensing fraud and penalise the concealment of such offences. The regulations issued under the Anti-Commercial Concealment Law identify the various methods by which companies can ensure compliance.
CMA amends the Securities Business and Capital Market Institutions Regulations
In line with its strategic objective to develop the capital markets in Saudi Arabia and Vision 2030, the Saudi Arabian Capital Market Authority (“CMA”) has introduced amendments to its Securities Business Regulations (“SBRs”) and Authorised Persons Regulations (now the Capital Market Institutions Regulations (“CMIRs”)). Some changes came into force in November 2020, and other changes will come into force at a later date in 2022. The SBRs set out the range of regulated securities activities that require authorisation by the CMA in order to be carried on by way of business with a person in Saudi Arabia. Key changes include adjusting and clarifying the scope of the activities of arranging, advising and managing. The CMIRs set out the requirements for an entity to be authorised by the CMA to carry on securities business in Saudi Arabia, as well as the continuing obligations for such an authorised entity. Key changes will affect foreign entities considering establishing a securities business in the Kingdom and client classifications.
CMA adjusts funds rules
The CMA has approved revisions to the Investment Funds Regulations, the Real Estate Investment Funds Regulation and a Glossary of Defined Terms used in the CMA’s regulations and rules, which will come into force in May 2021. The amendments are intended to improve the governance of investment funds and investor protection, in line with the international best practices and standards. Key changes enhance the role the board of directors of public funds and real estate private funds in supervising fund managers, and enhancing the level of transparency and disclosure in investment funds reporting. Other significant changes relate to the procedures for terminating and liquidating public and private funds, enable the offering and listing of closed-ended funds units, real estate investment traded funds units and exchange traded funds units in the Parallel Market (Nomu), and permitting public investment funds to subscribe for debt instruments issued via private placement.
Proposed restrictions on Government contracts with foreign companies
The Government has announced a new policy which would restrict Saudi Arabian government agencies, institutions and funds from entering into contracts with foreign counterparties which do not have a regional headquarters in the Kingdom, with effect from 1 January 2024. The proposed new policy is designed to encourage international companies seeking Government contracts to have their regional headquarters based in Saudi Arabia, and consequently facilitate greater employment and training opportunities for Saudi nationals in line with the Vision 2030. Reports indicate that the new restrictions should not affect foreign investors’ ability to do business in the private sector. Regulations are expected to be issued to give effect to this new policy.
Oman issues list of business activities restricted from foreign investment
Following Oman’s new foreign investment regime coming into force in 2020 (under Royal Decree No.50 of 2019), secondary regulations have now been issued specifying the commercial activities in which foreign investment is restricted. Similar to other regional foreign investment regimes, Oman’s regime anticipates that companies engaged in certain activities are not eligible receive foreign investment. These activities are primarily in the manufacturing and retail sectors.
Oman issues new rules for public companies
Oman has issued new regulations for public joint stock companies under the Commercial Companies Law (enacted by Royal Decree No.18 of 2019). The rules include provisions relating to the establishment of public joint stock companies, public offerings of shares, mergers and conversions, terms, company management and general meetings.