Over the past 15 years, the UAE has made significant strides towards establishing itself as the financial hub of the Middle East. Alongside the development of other sectors such as tourism, healthcare and hospitality (to name a few), significant investment has been made in the financial sector with the aim of developing a global financial center similar to those of New York, London, Singapore and Hong Kong.

To achieve this, the Dubai International Financial Centre (DIFC) was launched in 2004 with its own dedicated regulatory authority and judicial bodies. Almost a decade later, in 2013, legislation was passed for the creation of the Abu Dhabi Global Markets (ADGM), intended to become the dedicated financial free zone in the neighboring Emirate of Abu Dhabi. Together, these free zones are now recognized internationally and are used routinely for structuring cross-border transactions.

Onshore versus offshore

Whilst the DIFC and ADGM sought to draw from the experience of other well-established financial free zones for the purposes of establishing their own infrastructure and laws (predominantly using London as a model), the development and modernization of onshore laws lagged behind somewhat. This often raised issues for investors looking to use the UAE as a hub.

For a financier looking to lend to a local onshore borrower, creating and perfecting security interests over assets located in the region often proved more challenging than in some of the other well-established jurisdictions. Similarly, with the main banking law of the UAE (the Central Bank Law) passed in 1980, the regulatory system didn’t always legislate for new financial products and services, often presenting challenges for those operating in the financial services industry.

Recent developments

In keeping with the rapid modernization of the industry and to maintain the UAE’s position as the hub in the Middle East, the government of the UAE has introduced a series of important new laws over the last three years intended to update the legal system and develop a more familiar and friendly framework for international investors. It is hoped that these developments will have a positive impact on local and foreign banks operating in the UAE.

Commercial Companies Law

To begin with, a new Commercial Companies Law was passed in 2015 that provided much needed clarity on issues such as security over shares of onshore companies and clarifying or updating various aspects of the permissible corporate structures in the UAE. The ability to create security over the shares in an onshore entity was a welcome change as it provided greater comfort to financiers looking for effective collateral to balance their risk assessment.

Mortgages of moveable property

Federal Law No. 20 of 2016 on Mortgages of Moveable Assets as Security for Debts (the Mortgage Law), which came into force on March 15, 2017 is also seen as a major step toward greater certainty on secured financing transactions in the UAE. The Mortgage Law is fairly broad in its application and is intended to encompass a wide range of moveable assets (such as bank accounts, receivables, bonds, goods and other instruments).

Some of the key changes introduced by the New Mortgage Law include:

  • Introduction of the Emirates Moveables Collateral Registry (EMCR) which is an online security registration system, with perfection by registration and priority being determined by the date and time of registration;
  • Removal of the requirement to demonstrate possession or control (noting that possessory pledges are a feature of the old regime under the UAE Commercial Code);
  • Financiers now being able to create security over future moveable assets; and
  • The concept of self-help remedies now being recognized for the first time in the U AE, along with summary execution process (if a court process is required).

Bankruptcy Law

Federal Law No. 9 of 2016 Concerning Bankruptcy (the Bankruptcy Law) aims to modernize the UAE’s approach to business failure. The new law moves closer to US and English legal systems by focusing on making business rescue viable. For instance, the Bankruptcy Law has opened the possibility for a court ordered moratorium to stay actions against the debtor during composition and restructuring procedures, which was not previously recognized for debtors going through financial difficulties. Related provisions also afford wide-ranging powers to bankruptcy trustees to ensure business continuity and prevent value-erosion. The Bankruptcy Law is intended to increase confidence in investors looking to do business in the UAE.

Netting Law

The UAE recently introduced Federal Law No. 10 of 2018 (the Netting Law) which applies to counterparties based onshore in the UAE. This new law should fit neatly (in parallel) with the existing netting frameworks in the DIFC and the ADGM, which already cover trades with counterparties based in those financial free zones.

The Netting Law recognizes the core principle of close-out netting as incorporated into a master level agreement (intended to cover a series of derivatives transactions between two parties), by providing for a single net amount to be payable, as between those parties, upon a close-out or termination. In order to be flexible and to ensure proper market monitoring, the Netting Law also contemplates the creation of a special committee comprising representatives from the Ministry of Finance, the central bank, the Securities and Commodities Authority and the Insurance Authority.

In addition, in order to give the market even more confidence, the Netting Law will prevail over any conflicting provisions of laws or Sharia principles (such as uncertainty or speculation) that would otherwise have been problematic in the UAE.

Banking Law

The most recent significant change was the introduction of Federal Law No. 14 of 2018 governing the UAE Central Bank and the organization of financial institutions and activities (the New Banking Law). The New Banking Law was introduced to reinforce the role of the UAE Central Bank in directing and implementing monetary policy, ensuring stabilization and enhancing the regulatory framework over financial activities. One key feature of the New Banking Law is the establishment of a licensing committee under the auspice of the Ministry of Finance which will comprise of representatives from all of the regulators in the UAE to consider and decide on the regulatory rules applicable to new financial activities not captured under existing legislation in the UAE.

The full impact of the New Banking Law on cross-border transactions remains to be seen and will ultimately be assessed in due course once its implementing regulations are passed and once new circulars and resolutions are issued by the Central Bank.

Possible future regulations

As part of the mortgage laws, proposals for additional legislation are currently being considered within the Emirate of Dubai which would permit alternative financing methods through investment funds, intended to stimulate the economy (and more specifically the real estate market).

In addition to the New Banking Law, we are expecting a number of directives, resolutions and circulars to be issued by the Central Bank to replace the existing ones.

Further regulatory changes applicable to investment funds and cryptocurrencies are also under consideration which are intended to both modernize the financial sector and maintain its attractiveness as a dynamic and business-oriented jurisdiction to investors. The UAE has also taken a proactive approach in promoting fintechs and has adopted a regulatory framework encouraging their development.


The general architecture of the financial free zones within the UAE is not too dissimilar to that of London (including the legal framework and judicial system of these financial free zones which are either very close to or based on the London model). The stability and familiarity of these offshore jurisdictions has enabled the DIFC and the ADGM to continue to lead the charge for investment activity in the UAE and the wider Middle East region. The recent regulatory developments (outside those financial free zones) are intended to further encourage investment in the UAE by making the onshore system simpler and more familiar to foreign investors.