UAE eases foreign investment restrictions:
The United Arab Emirates (UAE) has introduced long-anticipated legislation which liberalises restrictions on foreign ownership of companies incorporated “onshore” in the UAE (i.e. outside the free zones). Federal Law No.19 of 2018 regarding foreign direct investment establishes a new framework for foreign ownership. Moving away from the long-standing general restriction (known as the “51/49 rule”) which requires a UAE company to have not less than 51 per cent. of its share capital owned by UAE nationals, the new regime allows foreigners to own up to 100 per cent. of the share capital in UAE companies operating in certain sectors, subject to licensing requirements. The sectors covered by the new regime will be set out in secondary legislation which is yet to be issued. Looking ahead, this reform may make doing business in the UAE easier for international investors operating in some sectors and it is likely to increase confidence in the UAE’s business environment.
New financial services law:
A new law, Federal Law No.14 of 2018, regulates financial services within the UAE and the operations of the UAE Central Bank. In terms of scope, the regime now extends to activities conducted “in or from” the UAE. Some of the key features of the new law include a new prohibition at a federal level against the marketing of financial services without first obtaining a licence, a revised list of regulated financial activities for which UAE Central Bank approval is required, recognition of foreign judgment and regulatory enforcement overseas in respect of a UAE licensed financial institution or a branch of a foreign bank in the UAE and a more expansive list of penalties for breaching the new Central Bank rules (including imprisonment). The law envisages that in the future, the UAE Central Bank will issue rules and standards of conduct electronically on its website through a UAE Central Bank Rulebook.
Value Added Tax (VAT) is now levied in the UAE, following the new regime coming into force in January 2018. Federal Decree Law No.8 of 2017 and the implementing regulations in Cabinet Decision No.52 of 2017 set out the domestic regime. This forms part of a regional introduction of VAT across the GCC Member States (the UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman), based on the principles agreed in the Unified GCC Agreement for Value Added Tax.
New stand-alone netting law:
Introducing a modernised framework for the
netting of payment and other obligations in
the UAE, Federal Decree Law No.10 of 2018 regarding Netting confirms the effectiveness of netting provisions under specified contracts in accordance with the terms of the parties’ contract, both prior to and following the commencement of insolvency proceedings in the UAE.
This is the first time that netting has been regulated on a stand-alone basis in the UAE (outside of the financial
free zones). The new permissive netting regime addresses the interplay with potentially conflicting provisions of UAE law, including the Bankruptcy Law 2016 and the Civil Code. It incorporates aspects of international best practice, drawing on the International Swaps and Derivatives Association (ISDA) Model Netting Act 2006. The reform will be of interest to those involved in the financial and commodity markets in the UAE and internationally.
New Federal public debt law:
A new Federal Public Debt Law (Federal Law No.9 of 2018) establishes for the first time frameworks for public debt management at a Federal level
and for the issuance of a Federal sovereign
bond. A new supervisory office, the Public Debt Management Office, is to be established within
the Ministry of Finance which will manage
Federal public debt, in co-ordination with the
UAE Central Bank. The new regime provides for
a ceiling on the amount of public debt which may be outstanding at any time at a Federal level and attaches conditions to debt instruments issued by the Federal Government. The law also regulates guarantees by the Federal Government of the obligations of public authorities, institutions and wholly-owned corporations. This forms part of a package of measures taken at a Federal and Emirate level in recent years that
seek to safeguard the financial system by regulating Government and Government-related entity debt incurrence.
Securing movable assets:
Lenders can now take non-possessory security over a range of present and future moveable assets (including receivables, bank accounts, bearer instruments, equipment, fixtures and other goods) in accordance with Federal Law No.20 of 2016 on the Mortgage of Movable Assets to Secure a Debt, and the implementing regulations which were issued in March 2018. Lenders can also register the security (which ensures priority) and may be able to enforce using self-help remedies. Cabinet Decree No.5 of 2018 clarifies further details of the form and content of the security agreement, together with the information, procedure and fees to register the security at the Emirates Movable Collateral Registry and to search the register.
Modernised arbitration law:
The UAE has a new stand-alone arbitration law, Federal Law No.6 of 2018 on Arbitration repealing the arbitration provisions set out in Federal Law No.11 of 1992. Incorporating aspects of international best practice in commercial arbitration, the UAE’s new arbitration law draws on the UNCITRAL Model Law on International Commercial Arbitration 1985. It applies onshore in the UAE, but not in the UAE’s self-legislating financial free zones, the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM), which have their own arbitration regimes.
Regulation of derivative contracts:
The UAE has introduced new regulations on derivatives (including over the counter (OTC) derivatives), which modernise the existing regulatory landscape. The UAE Securities and Commodities Authority Directors’ Decision No.(22/R.M) of 2018 Concerning the Regulation of Derivatives Contracts introduces mandatory reporting of derivatives contracts and a requirement for market participants to clear derivatives through a central counterparty licensed by the Securities and Commodities Authority (SCA).
SCA to regulate ICO Tokens as Securities:
The SCA has approved a plan to recognise digital tokens as securities and introduce a framework to regulate cryptoasset activities, including initial coin offerings (ICOs), exchanges and other intermediaries. This will affect entities seeking to issue, promote or market ICOs or token offerings in onshore UAE. This appears to signal a change in the SCA’s position. Earlier this year, the SCA cautioned investors against the risks associated with investments in digital, token-based fundraising activities, including ICOs, flagging the highly speculative nature of ICOs and the price volatility of tokens.
Basel III implementation in the UAE and financial free zones:
The financial services regulators in the UAE, DIFC and ADGM introduced revised prudential regimes for banks regulated in their jurisdictions in line with revised rules outlined by the Basel Committee on Banking Supervision in Basel III in January 2018.
DIFC Courts and Smart Dubai to launch world’s
first “Court of the Blockchain”:
The Dubai Government intends to run 100 per cent of applicable government transactions on blockchain by 2020. As part of this strategy, the DIFC Courts and Smart Dubai, a government initiative, are working together on a new “Court of the Blockchain”. This taskforce is intended to be the first step in “creating a blockchain-powered future for the judiciary” of the DIFC.
You can also read about developments in the fintech sector in our blog, FintechLinks.