The national digital dirham was recently introduced to the UAE in 2023, with amendments made by the federal law governing the Central Bank, which allowed a system to be set up as of January 2018. The decision makes the UAE one of the first countries in both region and globally to allow its central bank to provide a digital currency as legal tender. However, the amendment is significant in that it specifies that virtual assets recognized under other UAE laws cannot be considered as currency. With the amendment, the power to mint currency — whether digital or traditional– is held solely by (CBUAE) UAE Central Bank. Also, with the consent of the CBUAE it can open bank accounts for digital currency initiate policy restrictions; and establish ceilings on deposits in national and foreign currencies through financial authorities as their agent.

Khairallah Law Firm can be keenly demonstrated — particularly with respect to the new law for loan defaulters in UAE which signifies more than changing policies concerning loans made by at-risk borrowers. The CBUAE also has the ability to issue digital currency in amounts not exceeding AED 50. The introduction of this major change will come from 1 November 2023.

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Regulatory Update for Finance Companies: Oversight of BNPL Entities

The CBUAE recently introduced a new Finance Companies Regulation, adding two new license categories. One significant addition is the ‘Restricted License Finance Company,’ specifically for entities offering ‘Buy Now Pay Later’ (BNPL) services. The second category, ‘Agent,’ allows entities to provide BNPL services without a license, as long as they partner with a licensed finance company or bank in the UAE. Non-licensed BNPL providers had until 27 December 2023 to either apply for CBUAE licensing or stop their operations.

Amendments to Movable Security Registration Fees

The Emirates Integrated Registries Company (EIRC) made revisions to their charges and prices on 15 December 2023. Registration with the EIRC, which currently costs AED 100 will start at only AED 100 per annum for periods up to 12 months, after that incremental fees are applicable depending on the duration of registration. In addition, the center has launched a range of 16 additional services covering discounted registration changes amendments registrations, extensions, and online objections transactions. These modifications are in sync with the new law for loan defaulters in UAE, systematic regulation fostering the financial sector. The new categories and fees will be implemented on 27th February 2024.

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Amendment to Financial Restructuring and Bankruptcy Laws: Impact of the New Law for Loan Defaulters in the UAE

UAE — 31 October 2023: New corporate bankruptcy law is to come into effect from May. The salary is unpaid. Registered VATTraderCatering(LL)DPAS is also paid and accrued to the legal entity. The new law will supersede the current 2016 bankruptcy process. It amends the 2016 law on a wide range of fronts, including clarification or updating of definitions containing most key concepts; widening private directors and insolvent company managers packing blankets for incompetence liabilities under insolvency law boards wholly liable if their companies trade wrongfully-as an alternative to opening up lists by necessity; expanding responsibilities Financial Restructuring Committee. Another constraint of legal markets is that the law expressly contemplates insolvency proceedings and gives rise to superior interests in collateral, which allows specialized bankruptcy courts equipped accordingly with overseeing bankruptcies and providing security enforcement for secured creditors. To that end, it also eliminates the stringent preventative composition mechanism in the 2016 law and replaces it with a more user-friendly approach known as preventative settlement. We have published a more detailed Client Alert related to the new law which is available here.

Regulations for Recovery Planning

A Recovery Planning Regulation was introduced by the CBUAE as financial institutions are excluded from the new Bankruptcy Law. Insurers and banks, including branches of foreign lenders with bases in the UAE, will have to create a recovery plan under this regulation. This plan aims to help these institutions survive severe budget shortfalls, preserving a prospect for financial health in the future. Notably, this regulation aligns with the new law for loan defaulters in the UAE, enhancing the overall stability of the financial sector. We will produce a comprehensive client alert on this change.

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Conclusion

In all, the new UAE reforms on loan defaulters and financial regulations ahead of 2024 mark a paradigm shift within its economic landscape. The new national digital dirham puts the UAE ahead in the race for a competitive advantage brought about by digital currency. On the other hand, revised bankruptcy ordinances and stressed asset recovery planning make financial systems more robust. The financial reforms are designed to make banking easier, and consumers more secure in the region as line-of-control fraud plunges lenders’ margins into negative territory. Khairallah Law Firm steps in the space to help make sense of these regulation changes, keeping their clients informed and up-to-date on compliance.

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