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The United Arab Emirates, and in particular Dubai, have in recent years developed as the key financial hub of the Middle East. The UAE is fast becoming a leading global financial centre, and boasts one of the largest Islamic banking markets in the world, after Saudi Arabia and Malaysia.

There are essentially three broad categories of banks in the UAE: commercial banks, Islamic banks and foreign banks, all licensed and regulated by the Central Bank of UAE. Based on the total assets at the end of the third quarter of 2021, the five largest banks in the UAE are:

  1. First Abu Dhabi Bank;
  2. Emirates NBD;
  3. Abu Dhabi Commercial Bank;
  4. Dubai Islamic Bank; and
  5. Mashreq Bank.2

In Moody's long-term ratings of banks, the UAE banking system changed from negative in 2019 back to stable in 2021. The change has been attributed to Moody's view that the operating environment of UAE banks is recovering from the effects of the pandemic, attributed also to the Central Bank's support package, which supported the UAE's economy and consequently helped banks mitigate loan quality deterioration.3

The regulatory regime applicable to banks


The regulatory framework for banking in the UAE is based on the Banking Law,4 under which the Central Bank is entrusted with the issuance and management of the country's currency, and the regulation of the banking and financial sectors.

The Banking Law provides for the licensing and regulation by the Central Bank of:

  1. banks, which are defined to include institutions licensed to primarily carry on the activity of accepting deposits and other licensed financial activities such as granting loans, issuing and collecting cheques, placing bonds, trading in foreign exchange and precious metals, and carrying on other operations allowed by law or by customary banking practice;
  2. exchange houses and money intermediaries (i.e., foreign exchange dealers who purchase and sell currencies);
  3. Islamic financial institutions, which are defined as financial institutions licensed to undertake all the activities of a commercial bank, but in accordance with the principles of Islamic shariah; and
  4. other financial institutions.

The Banking Law does not apply to statutory public credit institutions, governmental investment institutions, development funds, private savings and pension funds, or to the insurance sector. Neither does it apply to the free zones or financial institutions established therein. The Central Bank does, however, have the right to exercise its powers over financial institutions outside the UAE or in free zones after consulting the relevant authority.

While the Central Bank is the principal regulatory authority of banks and financial institutions in the UAE, all such entities are also subject to additional registration and licensing requirements at the federal and emirate levels.

All commercial banks incorporated in the UAE must be established as public shareholding companies, and must be majority-owned by UAE nationals. A majority of directors of such companies must be UAE nationals. The minimum UAE national shareholding requirement for finance companies, banks and exchange houses is 60 per cent. Unlike branches of foreign companies in the UAE, foreign banks are not required to appoint a national agent to establish a branch in the UAE.

Based on data available on the Central Bank website, as at September 2021 there were 21 national banks, 27 foreign banks and 10 wholesale banks registered in the UAE.5

The principal difference in the treatment of local and foreign commercial banks is that local banks are not subject to any taxation on their income, whereas foreign banks are subject to tax at the emirate level.

Non-resident banks can grant bilateral credit facilities and participate in syndications in the UAE. They are not deemed to be resident, domiciled or carrying on business in the UAE, and are not liable to pay tax in the UAE merely on account of such bilateral facilities or participation in syndications. All licensed financial institutions are required under the Banking Law to maintain the confidentiality of all customer data and information.

ii Emirates Securities and Commodities Authority

The Emirates Securities and Commodities Authority (SCA) regulates the securities markets in the UAE. All UAE banks are listed in one of the two onshore markets, the Abu Dhabi Exchange and the Dubai Financial Market. The SCA licenses all brokers, consultants and custodians who provide services related to listed securities. The Investment Funds Regulation issued by the SCA in July 2013 transferred regulatory responsibility for the licensing and marketing of investment funds, and for a number of related activities, from the Central Bank to the SCA. The sale, marketing and promotion of foreign securities and funds in the UAE and the establishment of domestic funds require the approval of the SCA. This requirement has been further clarified and established under SCA Board of Directors Decision No. 3 of 2017 on the Regulation of Promotion and Arranging Activities.

iii Dubai International Financial Centre

The Dubai Financial Services Authority (DFSA) has adopted a regulatory approach modelled, at least in part, on the former Financial Services Authority in the United Kingdom. The DFSA does not grant banking licences per se; rather, it authorises financial service providers to undertake specific financial services. The relevant financial services in respect of banks include providing credit and accepting deposits. There are about 630 financial services firms with a presence in the Dubai International Financial Centre (DIFC). Of these, a substantial number of institutions do not have authority to accept deposits. This reluctance on the part of various institutions to be a 'true' bank can be traced back to two causes:

  1. DIFC entities were historically not able to deal with retail customers. This restriction was lifted several years ago, but the business model of the vast majority of institutions within the DIFC has been to focus on corporate clients or high net worth individuals; and
  2. banks have been reluctant to apply for authorisation to accept deposits because they remain unable to deal in dirhams or accept deposits from the UAE markets.

Most of the banks that have set up in the DIFC have done so as branches of overseas companies; this has been done for capital adequacy reasons. Recently, however, it has been the policy of the DFSA to encourage banks to incorporate new subsidiaries within the DIFC and capitalise those subsidiaries to an acceptable level.

iv Abu Dhabi Global Market

Following the success of the DIFC, a financial free zone, the Abu Dhabi Global Market (ADGM), was set up in Abu Dhabi and became operational in the second half of 2015. The financial services regulatory framework for the ADGM aims to reflect current international best practices by assimilating the key aspects of other regulatory regimes across the world. The ADGM has its own regulator, the Financial Services Regulatory Authority (FSRA). Like the DFSA, the FSRA does not grant banking licences per se. Banks licensed in the ADGM are prohibited from accepting deposits from the UAE market, and may not accept deposits or undertake foreign exchange transactions involving UAE dirhams.

v US Foreign Account Tax Compliance Act

The UAE and the United States reached an agreement in substance in May 2014 to include the UAE on the list of jurisdictions to be treated as having an intergovernmental agreement in effect in relation to the US Foreign Account Tax Compliance Act (FATCA). The UAE has adopted Model 1. Banks and financial institutions now routinely comply with FATCA requirements.

vi Common Reporting Standard

The Cabinet has approved the agreement on mutual administrative assistance in tax matters and the multilateral competent authority agreement by way of Cabinet Resolution No. 9 of 2016. Thus, the Common Reporting Standard (CRS) of the Organisation for Economic Co-operation and Development (OECD) has been effective in the UAE since 1 January 2017 to implement the automatic exchange of information about financial accounts. International Financial Reporting Standard 9 is required to be complied with by banks and financial institutions in the UAE. International Financial Reporting Standard 16 (which applies to leases and replaces the IAS 17 standard) came into effect on 1 January 2019.

vii OECD

The UAE has implemented the standards of joint disclosures and the exchange of information for tax purposes set out by the G20 and the OECD. This follows the Cabinet's decision requiring the Ministry of Finance to coordinate with various government authorities to collect financial information to implement information exchanges for tax purposes. The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions annually. Banks and financial institutions started collecting the required financial data as of 1 January 2017.