UAE Financial System - Detail Answer

UAE financial system  Regulators  Financial Intermediaries / Institutions  Financial Markets  Financial Instruments  Financial Services – All the services which are discussed by us are part of UAE Financial system as well

Regulators in UAE: The formal financial system comes under the regulations of the Ministry of finance (UAE MOF), Central bank of the UAE, Securities and Commodities Act (SCA) and other regulatory bodies. UAE-MOF – 1. Development and ensuring the sustainability of the financial resources of thefinancial resources of the Federal Government. 2. Raising and developing the efficiency of financial planning and the implementaion of the public budget of the state. 3. Raising and developing the efficiency and effectiveness of the financial work systems of the federal government. 4. Development of the legislation and financial policies and providing a completive environment. 5. Enhancing the financial position of the state on the regional and international levels. 6. Ensure the provision of all the administrative services in accordance with the standards of quality, efficiency and transparency. Central Bank of the UAE The Bank shall direct the monetary, credit and banking policy and supervise over its implementation in accordance with the State’s general policy and in such ways as to help support the national economy and stability of the currency. For the attainment of its objectives, the Bank shall: 1) Exercise the privilege of currency issue in accordance with the provisions of this Law; 2) Endeavor to support the currency, maintain its stability internally and externally, and ensure its free convertibility into foreign currencies.

3) Direct credit policy in such ways as to help achieve a steady growth of the national economy; 4) Organize and promote banking and supervise over the effectiveness of the banking system according to the provisions of this Law; 5) Undertake the functions of the bank of the Government within the limits prescribed in this Law; 6) Advise the Government on financial and monetary issues; 7) Maintain the Government’s reserve of gold and foreign exchange; 8) Act as the bank for banks operating in the Country; 9) Act as the State’s financial agent at the International Monetary Fund. The International Bank for Reconstruction and Development, and other international and Arab Funds and Institutions. And carry on all dealings of the State with such concerns. http://www.centralbank.ae/en/index.php?option=com_content&view=article&id=76&Itemid=96 Securities and Commodities Act (SCA) Strategic Goals: - First: Developing a supervisory system of work at the SCA in accordance with the best international practices. - Second: Developing legislations that regulate business activities in the UAE capital markets. - Third: Excellence and creativity in providing services to all parties in the capital markets. - Fourth: Developing and providing the central/non-central administrative services with utmost transparency and efficiency. Dubai Financial Services Authority – The DFSA is the independent regulator of all financial and ancillary services conducted through the DIFC, a purpose-built free-zone in Dubai. The DFSA’s regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange and an international commodities derivatives exchange. The DFSA is also responsible for the regulation and supervision of persons in the DIFC in relation to anti-money laundering, counter-terrorist financing and sanctions compliance.In fulfilling its mandate as the sole independent financial services regulator for the DIFC, the DFSA performs a number of functions. • Policy and Rulemaking • Authorisation • Recognition • Supervision • Enforcement • International Co-operation

Financial Intermediaries / Institutions Commercial Banks

The Central Bank is entrusted with the task of organizing banks in upgrading their management and to ensure their financial soundness. Circulars and regulations are being issued from time to time by the Central Bank to achieve this objective. The Central Bank is also continuously studying various ways and means to make the UAE a noted regional financial center. 1. Locally Incorporated and Foreign Banks - Banks in the UAE are divided into two major categories: - Locally Incorporated Banks - these are public shareholding companies licensed in accordance with provisions of Union Law No. (10) of 1980, and - Branches of Foreign Banks which have obtained Central Bank's licenses to operate in the country as per provisions of the said Law. Islamic banks – refer the laws provided separately. Investment Banks – Union Law No. (10) of 1980 defined investment bank as bank that does not accept deposits whose maturities are less than two years, but may borrow from its head office, from local or foreign banks, or from financial markets. Investment banks are licensed under the Regulation No. 21/2/88 dated 14/6/1988. Financial Investment Companies In order to organize and promote the business of financial investment companies to the appropriate internationally recognized standards and protect investors, the Board of Directors of the Central Bank issued Resolution No. 164/8/94 dated 18.4.1995. The resolution defines financial investment companies as those conducting one or more than one of the following business: 1. 2. 3. 4. 5.

Opening investment accounts and managing portfolios on behalf of others, whether individuals or companies. Preparing feasibility studies for projects and marketing allotments and stocks of shareholding companies. Establishing and/or managing investment trust funds. Establishing and/or managing other investment funds and act as trustee of funds entrusted to it by a trust to manage on behalf of a beneficiary. Subscribing to companies capital and participating in syndicated loans.

A financial investment company should be a juridical person with a minimum capital of dirham twenty five million dirhams liable to be increased according to the business the company intends to undertake. The resolution also requires that national shareholding should not be less than 51% of the paid-up capital, in addition to other terms and conditions set forth in the regulation. Moneychangers Money exchange is a thriving business in the UAE owing to a demographic structure which contains large numbers of expatriates regularly transferring remittances to their families and relatives in their home countries. The number of moneychangers operating in the country and volume of their transaction have increased rapidly in recent years, hence prompting the Central Bank to issue Resolution No. 123/7/1992, dated 29.11.1992 promulgating the new regulation for moneychangers. One of the most important provisions of the resolution confines licencing for

carrying on moneychanging business to institutions and companies established per provisions of the commercial companies' law. The resolution also requires that the natural person be a UAE national of not less than 21years of age. In case of companies, the national shareholding should not be less that 60% of the total paid-up capital. The regulation set the minimum capital at One Million Dirhams or Two Million Dirhams, depending on the scope of activities the applicant wishes to undertake. Finance Companies The Central Bank's Board of Directors Resolution No. 58/3/96 dated 14/04/1996 and Resolution No. 165/06/2004 dated 06/12/2004 regulate the business of finance companies (conventional) and finance companies which conduct their business per Islamic Sharia'a Principles respectively. Finance companies undertake one or more of the following major financing activities.: 1. Extend advances and/or personal loans for personal various consumption purposes. 2. Financing trade and business, opening credit and issuing guarantees in favor of customers. 3. Subscribing to the capital of projects and/or issues of stocks, bonds and/or certificates of deposit. However, contribution of the financing company to the capital of projects, issues of stocks and/or bonds, or certificates of deposit should not exceed 7% of its own capital. The paid-up capital of a finance company should not be less than dirham thirty five million and national shareholding should not be less than 60% of total paid-up capital, without prejudice to provisions of Federal Law No. 8 of 1984 and any subsequent amendments thereto.

Financial & Monetary Intermediaries CENTRAL BANK OF THE UAE THE CENTRAL BANK BOARD OF DIRECTORS RESOLUTION No. 126/5/95 AND RESOLUTION No. 153/5/97 egarding the Regulation for Financial and Monetory Intermediaries

The Central Bank's Board of Directors Resolution No. 126/5/95, dated 25.6.1995 regulates the business of intermediating in the sale and purchase of domestic and foreign stocks and bonds, currencies and commodities, as well as intermediating in money market transactions. According to the resolution, the intermediary should be a UAE citizen in the case of natural persons, and national shareholding should not be less than 60% of total paid-up capital in the case of companies. The regulation sets a minimum capital of one million dirhams, two million dirhams or three million dirhams according to the scope of activities the intermediary intends to carry on. Granting of licence to brokers and intermediaries dealing in local and foreign shares is the responsibility of the Securities and Commodities Authority of the UAE. Central Bank of the UAE, however, grants licence to brokerage firms dealing in currencies and commodities as well as intermediating in currency market transactions. Representative Offices

A representative office undertakes one or more of the following activities. The Central Bank's Board of Directors Resolution No. 57/3/1996 dated 14/4/1996 regarding Representative Offices: 1. Representing the financial institution licensed to deal inside the country, including contacts on its behalf with concerned agencies as well as promoting its services in the local market. 2. Providing the head office of the licensed financial institution with data relating to economic developments in the country. 3. Providing customers of the licensed financial institution with information on the local market. 4. Providing data to local agency, which intends to develop its business at countries wherein the licensed institution conduct its business. 5. Providing customers with banking, financial and investment consultation services. The representative offices should represent a bank or any other financial institution incorporated outside the country, holding a valid license obtained from competent authorities. Such bank or financial institution should also be subject to the direct supervision and examination of the said authorities at the country of origin and/or the head office as per laws of the country.

Financial Markets Emirates Securities Market: The Securities & Commodities Authority (SCA) has been founded based on the Federal Law no. (4) of 2000, that has stipulated on establishing the Emirates Securities & Commodities Authority & Market. Accordingly, the SCA laid out its administrative and technical structures and subsequently took the initiative to set up the Emirates Securities Market ESM. As a matter of fact, both of the Abu Dhabi Securities Exchange ADX & Dubai Financial Market DFM are the actually bourses eligible for trading transactions of the listed companies’ shares. Therefore, the SCA has successfully managed to link both markets via electronic installation of the live-market-watch screens for the Emirates Securities Market ESM. Moreover, the SCA issues on daily-basis the ESM index which respectively reflects the trading movements of the listed companies’ shares in both markets. While the index issued bearing the name of the Emirates Securities Market ESM, it is called, at the same time, the SCA index which is currently being considered the official index of the UAE capital market. It is worth mentioning that, there are quite reasonable number of the live-market-watch screens that are presently dispersed in the trading halls of ADX, DFM as well as in Sharjah, Ras AlKhema, and Fujairah emirates in addition to the newly fixed one in Al-Ain city. Abu Dhabi Securities Exchange aspires to become the market of choice in the region"

The Abu Dhabi Securities Exchange (ADX) was established on 15 November 2000 by Local Law No. (3) of 2000, the provisions of which vest the Market with a legal entity of autonomous status, independent finance and management, and give ADX the necessary supervisory and executive powers to exercise its functions. These functions are: 1. Provide opportunities to invest savings and funds in securities in order to benefit national economy. 2. Ensure the soundness and accuracy of transactions and to ensure the interaction between demand and supply in order to determine prices. 3. Protect investors through establishing fair and proper dealing principles between various investors. 4. Impose stringent controls over securities transactions to ensure sound and conduct procedure. 5. Develop investment awareness by conduction studies and issuing recommendations in order to ensure that savings are invested in productive sectors. 6. Ensure financial and economic stability and develop trading methods in order to ensure liquidity and stability of prices of Securities listed on the market. Moreover, ADX has the authority to establish centers and branches outside the Emirate of Abu Dhabi. To date it has done so in Fujeirah, Ras al Khaimah, Sharjah and Zayed City. The Abu Dhabi Securities Exchange’s board of directors is comprised of seven members nominated by Amiri Decree. The members of the board hold office for a term of three years. The first board of directors was constituted by Amiri Decree No. (8) of 2000. Dubai Financial Market was established as a public institution having its own independent corporate body by a Resolution from the Ministry of Economy No 14 of 2000. DFM is operating as a secondary market for trading of securities issued by public joint-stock companies, bonds issued by the Federal Government or any of the Local Governments and public institutions in the country, units of investment funds and any other financial instruments, local or foreign, which are accepted by the Market. The Market commenced operations on 26th March 2000. As decided by the Executive Council Decree on 27th December 2005, DFM us set up as a Public Joint stock Company in the UAE with paid up capital of AED 8 Billion allocated over 8 Billion shares, with a par value of AED 1.6 per share, and the twenty percent (20%) of DFM shares be offered for public subscription. This IPO, the first of its kind in the region, was highly oversubscribed and generated more than AED 201 billion. The trading of shares of Dubai Financial Market (DFM) began on Wednesday 7th March 2007.

Dubai Gold & Commodities Exchange (DGCX) commenced trading in November 2005 as the regions first commodity derivatives exchange and has become today, the leading derivatives exchange in the Middle East. DGCX is majority owned by Dubai Multi Commodities Centre (DMCC), a strategic initiative of the Government of Dubai, with a mandate to enhance commodity trade flows through the Emirate by providing the appropriate physical, market, financial infrastructure and services required. The Management team of DGCX comprises senior personnel from the commodities, securities and financial services industries bringing a wealth of experience and expertise to ensure the success of DGCX. The range of futures contracts offers participants of the physical commodities markets, such as producers, manufacturers and end users, with a sophisticated means of hedging their price risk exposure. Such price risk management has previously been unavailable to producers in the Middle East. In addition, DGCX offers trading opportunities to financial communities and investment houses in both the Middle East and around the globe who wish to access the growing asset class of commodity and currency derivatives. 

Guaranteed settlement and reduced counterparty risk provided by Dubai Commodities Clearing Corporation (DCCC), a subsidiary 100% owned by DGCX



The advantage of transacting and clearing business within the UAE and thus the local taxation and regulatory regimes



A simple fee structure - one fee for all participants. All participants also pay the same margin, whether commercial or non-commercial entities



An opening to both regional and international liquidity pools



Robust risk management and surveillance systems



Uninterrupted trading hours from 7:00am – 11:30pm (GMT +4)



Regulated by the Securities & Commodities Authority (SCA) The UAE enjoys an ideal location between the time zones of Europe and the Far East and DGCX offers a range of products from the precious metal, base metal, energy and currency sectors. New issue market in UAE – In May 2014, The Securities and Commodities Authority of the UAE (SCA) recently issued a new Regulation to give private joint stock companies with two full financial years’ performance history a “fast track” to listing on the DFM and ADX, without the need to convert to a public joint stock company and undertake the IPO process. The new Regulation opens the UAE equity market to a new range of issuers. Any UAE private joint stock company which meets the following criteria is eligible to apply for listing on DFM or ADX.



published audited financial statements for two complete financial years;



at least 30 shareholders; and



shareholder equity not less than paid up capital. A significant advantage for issuers and shareholders is that existing owners are not restricted from selling down their interest to buyers in the market. In contrast, where there is an IPO the founders cannot sell their shares for two years after listing. The new pathway may offer a faster exit for private equity firms and other shareholders choosing to sell down. The DFM and ADX both are involved in the listing of the companies for the first time. http://www.albawaba.com/business/uae-sca-warrants-545231 - Warrants

Financial Instruments The Instruments listed on the DFM consists of: 1. Securities of Banks, Investment and Financial services, Insurance Companies, Real estate and construction cos., Transportation cos, Industries, Consumer staples, Telecommunication cos., Services and NASDAQ Dubai. 2. Bonds issued by Government and Govt. owned Cos. 3. Islamic sukuks - An Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value. Sukuks must be able to link the returns and cash flows of the financing to the assets purchased, or the returns generated from an asset purchased. This is because trading in debt is prohibited under Sharia. As such, financing must only be raised for identifiable assets. 4. Mutual funds 5. Foreign Investment – Actual owned foreign investment The Instruments listed on the ADX consists of: 1. Listed companies 2. Investment funds – open ended, closed ended, Exchange Traded Funds (A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a

stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.) 3. Debt Instruments – NBAD Subordinated Convertible notes and Abu Dhabi Government bonds The instruments listed on DGCX are; 1. Options 2. Metals 3. Currencies 4. Hydrocarbons 5. Equities