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4.12.2 Financial System Regulation and Supervision Framework
The regulatory framework for banking in the UAE is based on Federal Law No. 10 of 1980 that
deals with, among others, central bank, the monetary system and the organisation of banking.
The Central Bank under Federal Law No. 6 of 1985 gives regulatory powers to the central bank
to regulate both conventional and Islamic banks, financial institutions and investment
companies (Khan and Walker 2010; Hashmi, 2007). The establishment of UAE Central Bank
was to bring about control and discipline to the banking sector in the country by regulating
and supervising various financial institutions, including Islamic banks (Hashmi, 2007, 77-78;
Khan and Walker, 2010).
While the licensing requirements for conventional and Islamic banks differ, the Central Bank
regulates them in the same manner. Regulations/supervision is unified for both the Islamic
and conventional financial sector and there is no separate regulatory/supervisory
unit/department for the Islamic financial sector. Conventional banks may have Islamic
windows subject to approval by the Central Bank. (CBUAE 2014: 66). The central bank has
issued various general resolutions on various financial institutions such as banks, investment
companies, brokers, finance companies, etc. that also apply to Islamic financial institutions (Al
Tamimi & Company 2016).
The Central Bank is updating its regulatory framework in line with Basel III standards in the
areas of capital, liquidity, risk management and corporate governance (CBUAE 2014). IFSB
capital requirements standards are not applied to IFIs in the UAE. Islamic banks have come up
with certain Sharia compliant instruments to meet the Basel III Tier 1 and Tier 2 capital
requirements. These include Tier 1 Sukuk issued by Dubai Islamic Bank and Abu Dhabi Islamic
Bank. Furthermore, these banks along with Al Hilal Bank also issue Tier 2 Sukuk. There are no
special financial soundness indicators for Islamic banks.
The IA regulates both conventional insurance and Sharia-based insurance (Takaful) (Panchal,
2016). Resolution No. 4 of 2010 of IA deals with Takaful Insurance Regulations. The document
provides regulatory guidelines of different types of takaful activities and their activities.
Regulation of securities trading and transactions involving investment products was under the
domain of the UAE Central Bank until 2000 when SCA was established. Under the law, the
division of responsibility between the Central Bank and SCA is not clearly delineated. The
Central bank recently entered into a memorandum of understanding with SCA pursuant to
which certain regulatory authority of the Central Bank to regulate the offer and sale of foreign
securities in the UAE was transferred from the Central bank to SCA (Khan and Walker, 2010,
584).
The SCA has generally limited its regulatory oversight to publicly listed UAE companies and
four public securities exchanges in the UAE namely: Emirates Securities Markets (ESM), Dubai
Financial Market (DFM), the Abu Dhabi Securities Exchange (ADX) and the Dubai Gold and
Commodities Exchange (DGCX). On the other hand, the sale of foreign securities in the UAE is
regulated by the Central Bank (Afridi and Angell, 2010). In 2014, the board of SCA approved
regulations for sukuk and corporate bonds.37
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