Restricted Licence Banks Regulation

1 CBUAE Classification: Public Restricted Licence Banks Regulation

2 CBUAE Classification: Public CONTENTS Page Subject مقدمـــة 3 Introduction النطـاق 3 Scope الهــدف 4 Objective تعريفــات 4 Definitions) 1 (Article المادة ( )1 المادة ( )2 الترخيــص 6 Licensing) 2 (Article المادة ( )3 الأنشطة المسموح بها 8 Activities Permitted) 3 (Article المال 9 Requirement to Maintain a Minimum Level of Capital Article (4) به الاحتفاظ المطلوب 9 Minimum Level of Paid- Up Capital Required to be Held Article (5) به 10 Quality of the Capital to be Held Article (6) الأخرى 10 Interaction with other Capital Requirements Article (7) المال 10 Breaches of the Minimum Capital Requirement Article (8) Application of Bank Regulations to Restricted Licence Banks Article (9) Article (10) Enforcement and Sanctions 11 والعقوبات التنفيذ ) 10 (المادة Article (11) Interpretation of Regulation 12 النظام تفسير ) 11 (المادة Previous of Cancellation المادة (12 ) إلغاء القرارات والتعاميم السابقة 12 Resolutions and Circulars Article (12) Article (13) Publication and Effective Date 12 النفاذ وتاريخ النشر ) 13 (المادة

3 CBUAE Classification: Public تعميم رقم: 2022/23 23/2022 : Circular No. التاريخ: /2/ 2022 17 17/2/2022 : Date الى: كافة البنوك محدودة الترخيص Banks Licence Restricted All : To الموضوع: نظام البنوك محدودة الترخيص Banks Licence Restricted : Regulation Subject مقدمة Introduction The Central Bank is seeking to enhance the regulatory framework for Banks, and cater for banking institutions that carry on restricted Licensed Financial Activities. The Restricted Licence Banks Regulation (the Regulation) sets out the specific regulatory requirements, which apply to Restricted Licence Banks only. Apart from the specific regulatory requirements contained in this Regulation, the requirements of all other Regulations, Standards, Guidelines and regulatory instructions issued by the Central Bank, which include All Banks within their scope of application, remain fully applicable and enforceable for Restricted Licence Banks. Banks licensed under this Regulation, which carry on activities, which are supervised by another regulator, must ensure that the applicable license/s are obtained from the relevant regulator/s to conduct such activities. This Regulation is issued pursuant to the powers vested to the Central Bank under the Central Bank Law. Scope This Regulation applies to all Banks, including branches of foreign banks, licensed by the Central Bank to operate as Restricted Licence Banks in the United Arab Emirates.

4 CBUAE Classification: Public Restricted Licence Bank is defined in Article (1) of this Regulation and refers to Banks, which by virtue of the restrictions placed on their licences, are not permitted to on-board natural persons as customers for the purpose of conducting Licensed Financial Activities; and/or to conduct any Licensed Financial Activities with or on behalf of natural persons. Additionally, when establishing a banking relationship with a customer Restricted Licence Banks are prohibited from opening accounts, or providing facilities, of any kind, in any amount less than one million Dirham (AED 1,000,000) or equivalent. The branches of a Restricted Licence Bank operating in the United Arab Emirates shall be considered as a single Restricted Licence Bank for the purposes of application of the provisions hereof. الهــــدف Objective The objective of the Regulation is to enhance the Central Bank’s regulatory framework for Banks and to accommodate for Banks to operate as Restricted Licence Banks in the United Arab Emirates. المـادة ( 1): تعريفــات Definitions :)1 (Article The following terms shall have the meaning assigned to them below for the purposes of this Regulation: ً Bank: Any juridical person licensed in accordance with the provisions of the Central Bank Law, to primarily, carry on the activity of taking deposits, and any other Licensed Financial Activities. 1.1 Board: The Board of Directors of the Restricted Licence Bank. 1.2 Central Bank: The Central Bank of the United Arab Emirates. 1.3

5 CBUAE Classification: Public Central Bank Law: Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities, as amended from time to time. 1.4 1- 5 عمــــيل ذو دخل مرتفع: شخص طبيعي: natural A :Customer Worth-Net-High person: 1.5 1.5.1 whose net worth1 is more than four million Dirham (AED 4,000,000) or equivalent, the calculation of which does not include the value of any property which is a primary residence, or any money raised through a loan secured on that property; and 1.5.2 whose liquid financial assets2 total at least one million Dirham (AED 1,000,000) or equivalent. Juridical Person: Any person who is not a natural person. 1.6 Licensed Financial Activities: The financial activities subject to Central Bank licensing and supervision, which are specified in Article (65) of the Central Bank Law. 1.7 Person: A natural or juridical person, as the case may be. 1.8 Regulations: Any resolution, regulation, circular, rule, standard or notice issued by the Central Bank. 1.9 1- 10 بنѧك محــѧـدود التѧرخيص: أي بنѧك ّ مرخـѧـص ,Bank Any :Bank Licence Restricted which is licensed by the Central Bank in 1.10 1 Calculated using standard definition, that is, total assets minus total liabilities. 1 . الخصوم إجمالي ناقص الأصول إجمالي وهو ،موحد تعريف باستخدام محسوبة 2 يشير إلى النقد أو ما في حكمه. 2 .equivalents cash or cash to Refers

6 CBUAE Classification: Public accordance with the provisions of the Central Bank Law, and subject to restrictions on its permitted Licensed Financial Activities as specified in this Regulation. Retail Banking: the conduct of Licensed Financial Activities with natural persons. 1.11 Senior Management: Management of the Bank responsible and accountable to the Board for the sound and prudent day￾to-day management of the Bank, generally including, but not limited to, the chief executive officer, chief financial officer, chief risk officer, and heads of the compliance and internal audit functions. 1.12 المادة (2): الترخــيص Licensing :)2 (Article ً Any Person who intends to operate a Bank as a Restricted Licence Bank must obtain a licence to do so from the Central Bank. 2.1 Licences and licence applications will be subject to the Central Bank Law’s relevant provisions and follow the process as determined by the Central Bank. 2.2 The licence shall contain the terms and conditions deemed appropriate by the Central Bank. 2.3 As part of the licensing process, an applicant for a licence to operate as a Restricted Licence Bank is required to submit a three (3) year business plan to the Central Bank. The proposed level of paid-up capital must be sufficient to cover the expected regulatory capital requirements over the three (3) year period, based on the projected Licensed Financial Activities. 2.4

7 CBUAE Classification: Public ً The holder of a restricted bank licence must commence Licensed Financial Activities, as specified in its licence according to Article (3) of this Regulation, within a maximum of six (6) months from the date of notification of approval of the licence. 2.5 A Restricted Licence Bank wishing to cease, or suspend, any of its Licensed Financial Activities must apply to the Central Bank at least six months in advance providing the reasons for such a cessation or suspension. 2.6 Ownership of a Restricted Licence Bank must comply with the requirements set out in the Central Bank Law and relevant Regulations. 2.7 Any changes to the Restricted Licence Bank’s name, legal form, memorandum and articles of association, require prior approval by the Central Bank. 2.8 The commercial or trade name of a Restricted Licence Bank must include either of the following terms: “wholesale bank”; or “investment bank”; or another term which conveys the restricted nature of the Bank’s Licensed Financial Activities, and is approved by the Central Bank. The Central Bank may, in certain circumstances and at its sole discretion, approve the use of a name, which does not meet the aforementioned naming requirements. The commercial and trade name shall not include any term that may indicate any activity other than the Licensed Financial Activities of the Bank in accordance with this Regulation. 2.9 Any holder of a licence, issued under the Central Bank’s Wholesale Commercial Banking Regulation issued by Board of Directors’ Resolution No. 41/4/2007, is 2.10

8 CBUAE Classification: Public deemed licensed under this Regulation on its effective date. On the effective date of this Regulation, any applicable Bank which is not compliant with the Regulation must, within ninety (90) days, provide the Central Bank with a detailed plan for coming into compliance with the requirements herein. المادة (3): الأنشطة المسموح بهـا Activities Permitted :)3 (Article A Restricted Licence Bank may carry on all Licensed Financial Activities, subject to the restrictions specified in Articles (3.2), (3.3) and (3.4) of this Regulation. 3.1 Restricted Licence Banks are not permitted to carry on Retail Banking activities, that is, they are not permitted to undertake any Licensed Financial Activities with or on behalf of natural persons. 3.2 A Restricted Licence Bank is not permitted to establish a banking relationship with a customer in any amount less than one million Dirham (AED 1,000,000), or equivalent. That is, a Restricted Licence Bank cannot accept an initial deposit of any type or provide an initial credit or funding facility to a customer in any amount less than one million Dirham (AED 1,000,000) or equivalent. 3.3 In certain circumstances, the Central Bank may, in its sole discretion, grant approval to a Restricted Licence Bank to conduct Licenced Financial Activities with a category of natural persons, subject to the imposition of certain controls and conditions on its licence. In all cases, these natural persons must be assessed by the Bank as High Net Worth 3.4

9 CBUAE Classification: Public Customers, that is, at a minimum, in compliance with the criteria stipulated in the definition per Article (1.6) of this Regulation. Article (4): Requirement to Maintain a Minimum Level of Capital Restricted Licence Banks must, at all times, maintain a minimum level of paid￾up capital. The level of this requirement is set in Article (5) of this Regulation. 4.1 The minimum level of capital must be held by a Restricted Licence Bank on an ongoing basis and is a prerequisite for licensing. 4.2 A Restricted Licence Bank may not decrease its paid-up capital without the prior approval of the Central Bank. 4.3 Article (5): Minimum Level of Paid-Up Capital Required to be Held Restricted Licence Banks operating in the United Arab Emirates must maintain fully paid-up capital of at least one billion Dirham (AED 1,000,000,000), except in the case of foreign branch banks. 5.1 Foreign bank branches licensed to operate as Restricted Licence Banks must maintain capital as prescribed in the Central Bank’s Minimum Capital for Banks Regulation3 . 5.2 5.3 As part of the licensing process, the ةѧعملي نѧم زءѧكج ،المركزي للمصرف يجوز 5-3 3 الصادر من خلال تعميم المصرف المركزي رقم 2021/12 بتاريخ 14 /2/ 2021 3 14/2/2021 on 12/2021 .No Circular Bank Central via Issued

10 CBUAE Classification: Public Central Bank may impose a higher minimum capital requirement and define the quality of capital eligible to meet this requirement. This higher minimum capital requirement will remain applicable until such time that the Central Bank, at its sole discretion, revises the requirement and a new capital decision is taken. المادة (6): نوعية رأس المال الذي يتم الاحتفاظ به Held be to Capital the of Quality :)6 (Article The minimum capital requirement, as per Article 5.1 of this Regulation, of a Restricted Licence Bank must be met with fully paid-up capital. 6.1 Article (7): Interaction with other Capital Requirements The minimum capital requirements as defined by this Regulation must be calculated on a standalone basis. 7.1 Article (8): Breaches of the Minimum Capital Requirement A Restricted Licence Bank, which is in breach of or is likely to be in breach of the minimum capital requirements, must immediately inform the Central Bank. 8.1 A Restricted Licence Bank, which is in breach of or is likely to be in breach of the minimum capital requirements must submit to the Central Bank for approval, a remediation plan for restoring capital to the minimum required level. 8.2 A Restricted Licence Bank must obtain approval from the Central Bank for any proposed distribution of profits, 8.3

11 CBUAE Classification: Public including dividend distribution, which will result in a breach of the capital requirement as specified in Article (5) of this Regulation. The Restricted Licence Bank must obtain such approval before announcing the proposed distribution publicly in a press announcement, or by other means of communication and prior to submitting a proposal for a distribution for shareholder approval. Article (9): Application of Bank Regulations to Restricted Licence Banks A Restricted Licence Bank must comply with all Regulations issued by the Central Bank that are applicable to Banks. The requirements of the Central Bank’s Minimum Capital for Banks Regulation4 are not applicable to locally incorporated Restricted Licence Banks, as the minimum capital requirements are established within this Regulation. 9.1 Article (10): Enforcement and Sanctions والعقوبات التنفيذ :)10 (المادة .ً Violation of any provision of this Regulation and any accompanying Standards may be subject to supervisory action, administrative action and financial sanctions as deemed appropriate by the Central Bank. 10.1 Supervisory action and administrative and financial sanctions imposed by the Central Bank may include withdrawing, replacing or restricting the powers of Senior Management or members of the Board, providing for the interim management of the Bank, imposition of fines or barring individuals from working in the United Arab Emirates’ banking sector. 10.2 الصادر من خلال تعميم المصرف المركزي رقم 2021/12 بتاريخ 14 /2/ 2021 4 14/2/2021 on 12/2021 .No Circular Bank Central via Issued 4

12 CBUAE Classification: Public Article (11): Interpretation of Regulation النظـــام تفســير :)11 (المادة The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of this Regulation. 11.1 المادة (12): إلغــاء القـــرارات والتعــاميم الســــابقة Previous of Cancellation :)12 (Article Resolution and Circulars This Regulation repeals and replaces the following Resolution and Circulars: 12.1 12.1.1 UAE Central Bank Board of Directors Resolution No. 41/4/2007 dated 16/9/2007. .1988 /6/ 14 12.1.2 UAE Central Bank Board of Directors Resolution No. 21/2/88 dated 14/6/1988. 12.1.3 Board Circular No. 495 dated 4 December 1979. 12.1.4 Board Circular No. 282 dated 15 May 1976.5 12.1.5 Board Circular No. 276 date 20 April 1976.6 المادة (13): النشر وتاريخ لا نفاذ Date Effective and Publication :)13 (Article This Regulation shall be published in the Official Gazette in both Arabic and English and shall come into effect one month from the date of publication. 13.1 كما تم الإشارة إليه في تعميم المجلس رقم 495 المؤرخ 4 ديسمبر 1979 5 1979 December 4 dated 495 .No Circular Board the in referenced As 5 6 كما تم الإشارة إليه في تعميم المجلس رقم 495 المؤرخ 4 ديسمبر 1979 6 1979 December 4 dated 495 .No Circular Board the in referenced As

13 CBUAE Classification: Public The Central Bank may apply transitional arrangements, on a case by case basis, to facilitate full compliance by Banks, which at the time of publication of this Regulation, carry on restricted activities in line with this Regulation. 13.2 Khaled Mohamed Balama Governor of the Central Bank of the UAE