Do senior bank staff, including non-executive directors, have to be registered with your national regulatory authority?
With the exception of the Dubai International Financial Centre (the DIFC) (which is regulated by the Dubai Financial Services Authority (the DFSA)), the Central Bank of the United Arab Emirates is primarily responsible for regulating banks and other financial institutions in the United Arab Emirates.
The UAE Federal Law No. 10 of 1980 concerning the Central Bank, the Monetary System and the Organisation of Banking (the Banking Law) requires that the Central Bank vets and approves nominations for senior management positions at banks and other financial institutions operating in the United Arab Emirates in order to ensure that the candidates for the relevant position are suitable.
Where a bank or financial institution is registered in the DIFC it, and its staff, will be regulated by the DFSA and must comply with the DFSA laws and rules (the DFSA Legislation).
DFSA Legislation states that any director, officer, employee or agent of an authorised firm (i.e. an entity, body, government or state that has been licensed by the DFSA to carry out financial services in the DIFC) (an Authorised Firm) that performs functions which require a licence pursuant to the DIFC Laws Amendment Law No.1 of 2014 (an Authorised Individual) must be registered with the DFSA.
The licensed functions of an Authorised Individual are materially linked to an Authorised Firm’s management, and/or the provision of its financial services. As a result, the DFSA require Authorised Individuals to meet certain standards in relation to their experience, knowledge and qualifications. The licensed functions include senior executive officer, licensed director, licensed partner, finance officer, compliance officer, senior manager, money laundering reporting officer or responsible officer (which is similar to that of a non-executive director) (a Licensed Function).
If your national regulatory authority requires registration of senior bank staff what are the requirements?
The requirements regarding senior bank staff vary slightly depending upon the type of financial institution, but, generally, under the Banking Law, the Central Bank, in assessing the suitability of any applicant, will have particular regard to the competence, experience, character, integrity and qualifications of the candidate and require an applicant to satisfy personal reliability and professional qualification criteria as determined by the Central Bank.
These are broadly that an applicant must be of good conduct and behaviour, must not have been convicted for any offence involving dishonour, dishonesty or violence, must not have failed to honour his liabilities towards banks or other creditors and must not have been declared bankrupt, reached a settlement with his creditors nor been subjected to attachment of his assets or put under judicial receivership. The applicant must have the appropriate theoretical knowledge and the necessary management experience for the role.
The Central Bank will in most cases require sight of the curriculum vitae of the applicant together with supporting documents and, in some cases, may require that the applicant is interviewed or tested by them.
On reviewing an application, the Central Bank may take into consideration any matters relating to another company within the same group or regarding any senior staff thereof as concerns personal reliability or professional qualifications.
There are also on-going requirements regarding the enhancement of UAE nationals’ participation in the private sector and an obligation incumbent upon banks operating in the UAE to employ UAE nationals at the rate of 4 per cent each year. In some cases, the composition of the board of directors or management of a bank or other financial institution must comply with ratio requirements regarding the number of UAE nationals versus non-UAE nationals.
With regard to the DIFC, in submitting applications for Authorised Individual status, both the individual and Authorised Firm must complete and submit the appropriate form available through the DFSA. Before lodging an application with the DFSA, an Authorised Firm must make reasonable enquiries as to an individual’s fitness and propriety to carry out a Licensed Function. The individual in question must satisfy both the Authorised Firm and the DFSA that he or she is the fit and proper person to carry out the role and the DFSA must be satisfied that the functions of their role will be conducted and managed in a sound and prudent manner.
The DFSA Legislation sets out rules and guidelines as to the matters an Authorised Firm must take into consideration when assessing the suitability of a candidate. The assessment process must be recorded and such records must be retained for a minimum of six years from the date of the assessment.
In making its evaluation, the DFSA will consider, amongst other things, the individual’s integrity, competence and capability, financial soundness and his or her proposed role within the Authorised Firm. The DFSA may require an interview with the individual for these purposes. The DFSA rules state that an individual may not be considered as fit and proper where he or she is bankrupt, has been convicted of a serious criminal offence or is incapable, through mental or physical incapacity, of managing his or her affairs.
The DFSA may reject an application for Authorised Individual status or extension to such status or grant Authorised Individual status or extension to such status with or without conditions and restrictions.
Is there legislation specific to the banking sector that provides for penalties to be levied against senior staff for mis-managing a bank?
In general, under the Banking Law, there is no personal liability for senior staff of a bank except in the case of fraud or illegality. In these cases, the senior staff will be subject to criminal proceedings and penalties under the criminal law. In addition, the board of directors and management of a bank may be subject to criminal sanctions on the insolvency of the bank in particular prescribed circumstances specified under the Commercial Code (Federal Law 18 of 1993).
With regard to the DIFC, the DFSA Legislation contains a number of provisions relating to the proper management of an Authorised Firm by an Authorised Individual including a principle whereby an Authorised Individual must act with due skill, care and diligence in carrying out every Licensed Function.
Where the DFSA considers that a person has contravened a provision of any DFSA Legislation it may, amongst other things, fine that person such amount as it considers appropriate in respect of the contravention. In determining whether to impose a fine and the quantum of the fine, the DFSA will take into consideration the circumstances of the conduct and will be guided by the penalty guidance in the DFSA Legislation.
What is the maximum amount the regulator can fine an individual?
With regard to the DIFC, the DFSA Legislation prescribes that the maximum fine in respect of an individual is USD20,000.
However, where the circumstances and factors in a matter are of a more serious nature, the DFSA may seek to impose a fine by commencing proceedings before the Financial Markets Tribunal (the FMT) or the DIFC Court and the FMT or the DIFC Court may impose a fine in any amount it considers appropriate.
Is there legislation in place that requires banks to have in place remuneration policies and practices that are consistent with effective risk management?
The Banking Law does not specifically address remuneration policies and practices, but prescribes a required administrative structure for banks. In particular, there should be a separation of roles with each role allocated separate responsibilities, such that the Chairman is separated from all other posts; there should be no overlap between the board’s functions with that of the general management of the bank (for example, the Chairman must not occupy the post of the Chief Executive Officer); and, the post of Chief Executive Officer should be separated from all other roles.
The Central Bank recommends the establishment of a “Corporate Standards Manual” to identify roles and responsibilities of departments, branches and divisions as well as their reporting lines and also which may include standards regarding behaviour of staff inside as well as outside the bank.
The Central Bank also recommends the establishment of an Internal Audit Department to ensure that there are no over-lapping functions between roles and to guard against conflicts of interests among staff and also to notify the board in the event of an embezzlement case or other violations of laws or regulations. Such Internal Audit Department would report to the Chairman, with a copy of each report sent to each board member and to the Chief Executive Officer of the bank and a copy forwarded to the Central Bank as soon as it is issued.
The Banking Law also includes specific provisions which prohibit any member of the board or manager of a commercial bank from holding, without permission from the board of the bank, a position as bank manager or member of the board of any other bank and which prohibit an auditor serving on the board of a bank or from holding a position as staff member or regular consultant to the bank to which it is assigned.
With regard to the DIFC, the DFSA Legislation states that an Authorised Firm must have a remuneration structure and strategies which are well aligned with the long term interests of the firm, and are appropriate to the nature, scale and complexity of its business.
According to the DFSA rules, the governing body of an Authorised Firm must ensure that the remuneration structure and strategy of the firm
- is consistent with the business objectives and strategies and the identified risk parameters within which the firm’s business is to be conducted;
- provides for effective alignment of risk outcomes and the roles and functions of the employees, taking account of: (i) the nature of the roles and functions of the relevant employees; and (ii) whether the actions of the employees may expose the firm to unacceptable financial, reputational and other risks;
- at a minimum, includes the members of its governing body, the senior management, persons undertaking key control functions and any employees whose actions have a material impact on the risk exposure of the Authorised Firm; and
- is implemented and monitored to ensure that it operates, on an on-going basis, effectively and as intended by the DFSA Legislation.
The governing body of an Authorised Firm must provide to the DFSA and any relevant stakeholders sufficient information about its remuneration structure and strategies to demonstrate that such structure and strategies meet the requirements set out in the DFSA Legislation on an on-going basis. In the case of banks more detailed disclosure of remuneration structure and strategy and its impact on the financial soundness of the firm would be required.
The DFSA Legislation contains best practice guides in relation to corporate governance and remuneration which Authorised Firms are encouraged to follow. Where an Authorised Firm deviates from such best practice guides, the DFSA will require evidence of and reasoning for such deviations.
Is there any legislation planned in your jurisdiction that will strengthen the accountability of senior bank staff?
There is currently no legislation planned in the United Arab Emirates to update the banking sector in this area. The Banking Law has not been substantially amended or updated since it was adopted in 1980. There are therefore many features of other regulatory regimes in different jurisdictions which are not yet adequately addressed in the United Arab Emirates.