Framework for Specialised Banks In Effect: "Low Risk" Banks to Serve Only Residents

The new regulation which formulate the licensing and regulation framework for the ‘Specialized Banks with Low Risk' or Specialised Banks have come into effect from 30th of April 2021. The regulations have been brought under the Central Bank Circular No. 13/ 2021, and are in pursuance of the objectives of organisation, development and regulation of the UAE Banking Sector. More specifically, the notification elucidates on the specific purpose of the regulations to include protection of the depositors & consumers and for maintaining the overall stability of the financial sector.
These specialised banks are, as per the regulations, the banks licensed under the new system to meet the needs of the locals, and hence serve only the citizens and residents of the UAE. The transactions would be limited to AED and follows a low-risk credit model. The banks can work as a traditional/ conventional specialised bank or as a specialised Islamic Bank. The regulatory framework stresses on compliance and applies to all specialised banks. All the branches of a specialised bank would be seen as one single entity.
The Specialised Banks need license from the Central Banks to Commence operations. The same maybe applied for, listing out the relevant activities which they wish to undertake; however, it is pertinent to note that the activities are limited to the permitted activities. Once the license is issued and notified, the bank has to commence operations within 6 months. Furthermore, an application with sufficient reasons listed needs to be submitted at least 6 months prior to cessation, if cessation is being planned. Permitted activities are elucidated under Article 3 of the regulation.
The minimum paid-up capital requirement has been set at Dh300 million, with any changes in the paid up capital being effected with the prior approval of the Central Bank alone. Furthermore, single shareholding cannot exceed 20% of the total shareholding. Changes in activities too need prior approval. The notification further sets out Liquidity Requirements and Credit Exposure Restrictions, and also adds mandates for credit and regulatory reporting. Last but not the least, it has to be noted that the Central Banks have been given wide powers for supervisory activities, following instances of violations.