The UAE Government has recently enacted a federal decree law on the Capital Market Authority and a federal decree law on the Regulation of Capital Markets, as a further step in the modernisation of the legal and regulatory framework of the financial sector and to increase its stability, efficiency, and competitiveness.
The Decree Laws also further harmonize the national regulatory ecosystem with the utmost international standards and strengthen the independence of the Capital Market Authority and its functions of ensuring the soundness and stability of the capital markets sector and fair competition.
The two Federal Decree Laws are targeted to maintain stability and integrity of the capital markets sector and establish the main mandate of the Capital Market Authority including regulating the activities and issuers of financial institutions, supervising and monitoring them in respect to international standards, issuing regulations and standards to ensure fair and effective financial practices, backing principles of governance, monitoring and analysing risks of the systems, and establishing the global image of the UAE capital markets sector as a financial centre with a sound international reputation.
The two Federal Decree Laws aim at increasing the alignment with the global best practices and adherence to the mandate of international organisations with an interest in the financial sector, such as the International Organization of Securities Commissions, the World Bank, the International Monetary Fund, and the recommendations of the Financial Action Task Force, among other requirements that help in the enhancement of international assessments.
Moreover, the two Decree Laws assist in the promotion of international cooperation, simplify the process of mutual recognition, and allow recognition of financial products among jurisdictions.
Regarding consumer protection and financial inclusion, the two Federal Decree Laws implement a combined system that requires licensed individuals to empower all segments of the community to receive the right financial services as per the evolution of digital transformation and financial technology, as well as to promote sustainability and leadership in financial operations and services.
The framework also proposes national awareness programmes in collaboration with the financial sector and the civil society institutions, and supports the maintenance of the already positive practices, especially those concerning the matching of credit facilities to the level of client income and safeguarding clients against irresponsible practices.
The Federal Decree Law on the Regulation of Capital Markets includes proactive early intervention provisions aimed at responding to the signals of the decline in financial position of persons licensed to provide financial activities and services, and to guarantee the financial stability of financial activities and services, and safeguard clients.
They involve the activation of recovery plans, increasing capital and liquidity requirements, changes of strategy, administrative and operational structure, appointment of temporary committees or placing licensed persons under direct administration, taking merger, acquisition, or liquidation measures where necessary, and special measures where a licensed person is unable to rectify its position.
Pursuant to the Decree Law, the Capital Markets Authority, acting as the resolution authority, is in the central position in handling financial crisis by dismissing and appointing management, appointing a temporary administrator to run the licensed person and its assets, capital restructuring, and introducing rescue measures to keep key activities going.
In terms of administrative sanctions, the Decree Laws set that the administrative fines should be proportional to the magnitude of violations and the magnitude of transactions, and the Authority can impose proportional fines of up to ten times the amount of profit obtained by the violator, or the 10 times the amount of the loss avoided.
It also permits reconciling with violators before full judicial determinations are issued and also permits publication of sanctions on the official website of the Capital Markets Authority, thus increasing both transparency and market discipline.
