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GCC Quarterly Review - Q1 2024

Explore the recent developments
in the Gulf Cooperation Council (GCC)

Welcome to the Q1 edition of our GCC Quarterly Review

The first quarter of 2024 saw a number of legal developments in the Gulf Cooperation Council (GCC) region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). This edition of our GCC Quarterly Review summarises a selection of the major developments in that period, with links to further reading where available.

Abu Dhabi Global Market (ADGM)

ADGM expansion: transitional provisions

Transitional provisions apply to existing businesses on Al Reem Island in Abu Dhabi, and those planning to establish a presence on Al Reem Island, following the extension of the jurisdictional area of ADGM to include Al Reem Island, pursuant to Cabinet Decision No. 41 of 2023 in April 2023.  From 1 January 2025, the ADGM’s licensing and regulatory framework will apply to all businesses located on Al Reem Island. Previously, Al Reem Island was within the jurisdictional scope of the laws of Abu Dhabi.

During the transitional period up to, and including 31 December 2024, existing businesses on Al Reem Island licensed with the “onshore” Abu Dhabi Economic Development Department may renew their licence with the Abu Dhabi Economic Development Department (which would only be valid up to 31 December 2024) or apply for an ADGM licence. 

Alternatively, businesses may wish to consider registering a new free zone entity and applying for a new ADGM licence or relocating outside the ADGM no later than 31 December 2024. New businesses planning to establish on Al Reem Island must submit their commercial licence application to the ADGM rather than the Abu Dhabi Economic Development Department. ADGM regulations will apply to a business on Al Reem Island once the commercial licence has been issued by the ADGM.

arbitrateAD becomes operational and issues new Arbitration Rules

The Abu Dhabi International Arbitration Centre (known as arbitrateAD) became operational and issued its new arbitration rules, the Arbitration Rules for ADIAC, on 1 February 2024. 

According to the Arbitration Rules for ADIAC the ADGM is the default seat of the arbitration, where the seat is not agreed between the parties, multi-party and multi-contract arbitrations, joinder and consolidation are expressly permitted, and a new stand-alone Court of Arbitration has a supervisory role over the arbitrations administered under the Arbitration Rules for ADIAC. 

Aspects of the Arbitration Rules for ADIAC are consistent with international “best practice” seen in the rules of other international arbitration centres”, and also the “best practice” set out in the UNCITRAL model arbitration rules.

Dubai International Financial Centre (DIFC)

New DIFC Law of Security

The new DIFC Law of Security, DIFC Law No.4 of 2024, is in force and significantly amends the regime for taking security over movable assets in the DIFC, following enactment on 1 March 2024. It repeals and replaces the previous Law of Security, DIFC Law No.8 of 2005 and the DIFC Financial Collateral Regulations 2019, amalgamating the regulation of security over financial collateral arrangements within the new Law of Security. The DIFC Securities Regulations 2019 remain in force. 

The new DIFC Law of Security broadly follows the approach taken in the draft law which was the subject of the consultation in late 2023 (The Law of Security – Consultation Paper No.5 of 2023). 

The regime regulates “Security Rights” over present and future “Movable Assets” to secure payment or other performance of an obligation. Broadly, Moveable Assets comprise tangible and intangible assets (other than real property), including bank accounts, receivables, financial collateral (such as money credited to a bank account and financial property comprising shares, other securities and derivatives), negotiable instruments and digital assets.

There are general rules and detailed asset-specific rules relating to the creation, effectiveness against third parties, priority and enforcement of Security Rights. The inclusion of asset-specific provisions in the new DIFC security regime is novel, as the previous regime took a generic approach, with no distinction between the regulation of security rights based on the type of asset secured. 

The method of perfection of Security Rights against third parties, and priority, varies depending on the type of asset secured. Generally, a Security Right will be effective against third parties if a Financing Statement is registered in the DIFC Security Registry, in line with the approach of the previous regime. Some assets may be secured by means of control (for example, in the case of bank accounts, digital assets or financial property). There are also obligations to notify third parties of the security for some types of assets, such as receivables. 

Companies and their financiers will need to ensure they are familiar with the nuanced requirements for taking security over different types of Moveable Assets in the DIFC and applicable transitional provisions for existing security in the DIFC. 

New DIFC Digital Assets Law

The DIFC now regulates digital assets for the first time pursuant to the DIFC Digital Assets Law, DIFC Law No.2 of 2024. The Digital Assets Law was enacted on 1 March 2024, following an extensive consultation in late 2023 and review of emerging global regulation of this asset class (The Digital Assets Law – Consultation Paper No.4 of 2023). 

A “Digital Asset” is a type of “intangible property” that:

  • exists as a notional quantity unit manifested by the combination of the active operation of software by a network of participants and network-instantiated data;
  • exists independently of any particular person and legal system; and
  • is not capable of duplication and use or consumption of the thing by one person or specific group of persons necessarily prejudices the use or consumption of that thing by one or more other persons.

The regime sets out how title to, and control of, Digital Assets can be established and transferred, the impairment of Digital Assets and related liabilities, and the recovery of control of Digital Assets. The Digital Assets Law should operate to regulate digital assets, such as cryptocurrencies, non-fungible tokens (NFTs), stablecoins and security tokens.

Other DIFC laws have been revised to reflect the new regime for Digital Assets, pursuant to DIFC Amendment Law, No. 3 of 2024. The new DIFC Law of Security, DIFC Law No.4 of 2024, regulates taking security over Digital Assets.  

You can read more about global developments relating to digital assets in our FintechLinks blog.

Updates proposed to crypto token regime

Updates to the regulatory regime for financial services activities in respect of “Crypto Tokens” in the DIFC are proposed, as set out in the Dubai Financial Services Authority’s (“DFSA”) Consultation Paper No. 153 - Updates on the Regulation of Crypto Tokens. The proposals follow feedback from market participants since the introduction of the regime in November 2022 (read more), and international regulatory developments in this area, including recommendations of the International Organization of Securities Commissions (IOSCO) and a consultation issued by the Basel Committee. 

Firms in the DIFC can apply for and obtain a licence to provide financial services with Crypto Tokens in or from the DIFC. Financial Services can only be carried on in or from the DIFC with a Crypto Token that is “Recognised”. This restriction extends to derivative transactions relating to Crypto Tokens and to Funds or portfolio managers that invest directly or indirectly in Crypto Tokens (the only exception is for a DFSA licensed custodian).

Key proposals in the consultation paper relate to:

  • amendments to the standard recognition criteria to accommodate “stablecoins”;
  • changes to allow funds to invest in Crypto Tokens and for foreign funds that have investment in Crypto Tokens to be offered in the DIFC, subject to certain conditions;
  • the storage of Crypto Tokens;
  • arrangements for unauthorised or incorrectly transferred Crypto Tokens; and 
  • expectations regarding compliance with financial crime (AML/CFT) laws.

UAE

New Public Private Partnerships Law

Public-private partnerships (“PPPs”) between the Federal Government and the private sector for strategic government projects involving the provision of a public service or the operation of a public facility are regulated by a new regime, with effect from 1 December 2023. 

Federal Law No.12 of 2023 Regulating the Partnership between the Federal Public and the Private Sectors (“PPP Law”), together with the accompanying Partnership Projects Guidebook (which is yet to be published), regulate matters related to PPPs, including feasibility studies, project selection and approvals, tendering methods and procedures (a two-stage method and a direct appointment method) and the terms of project agreements. It also regulates governing law and dispute resolution matters.

A PPP may take one of the forms specified in the PPP Law or another form that may be specified in the Partnership Projects Guidebook.

Project companies established by the private sector partner(s) in the UAE may be wholly owned by foreign investors, in accordance with the foreign investment regime.

New UAE Beneficial Ownership Regulation

UAE companies must comply with revised rules on the disclosure of their ultimate beneficial owners, in accordance with UAE Cabinet Resolution No.109 of 2023 On the Regulation of the Real Beneficiary Procedures (the “UBO Regulations”). The UBO Regulations came into force in November 2023 and repeal and replace the previous regime set out in UAE Cabinet Resolution No.58 of 2020. The UBO Regulations form part of the UAE’s anti-money laundering and counter-financing of terrorism (AML/CFT) initiatives and should increase standards of transparency of ownership structures, including in the case of complex arrangements. 

The UBO Regulations apply to corporate entities that are licenced or registered in the UAE, including in the non-financial free zones. There are exemptions for companies that are wholly owned by a Federal or Emirate government or their subsidiaries and companies in the financial free zones of the DIFC or ADGM, which have separate regimes. 

Companies to whom the UBO Regulations apply must take reasonable measures to obtain and maintain accurate and up to date information on beneficial owners, and record of details of beneficial owners in a Beneficial Owners’ Register. 

A Beneficial Owner is a person who ultimately owns or exercises control over a legal entity, directly or through a chain of ownership or control, or other indirect means or on whose behalf transactions are conducted or who exercises ultimate control over a legal entity or a legal arrangement. 

Companies must update their Beneficial Owners’ Register in the event of any changes to their beneficial owners and must disclose any such changes to the Registrar. Penalties may be imposed for failure to comply, which may include warnings, fines or licence suspension. 

UAE Central Bank Recovery Planning Regulation

Financial institutions in the UAE are required to plan effectively to manage periods of financial difficulty and facilitate recovery in accordance with a dedicated insolvency and rescue framework issued by the UAE Central Bank. The Recovery Planning Regulation (UAE Central Bank Circular No.4 of 2023) was issued on 30 October 2023.

The Recovery Planning Regulation applies to banks and financial institutions in the UAE, including banks and insurance companies in the UAE, branches of foreign banks and branches of foreign insurance companies and any other licensed financial institutions designated by the UAE Central Bank. 

Financial Institutions must have a recovery plan in place by 30 June 2024. Minimum requirements for the contents of a recovery plan include, among other things, a range of recovery options to restore viability (together with detailed preparatory arrangements for each option), stress testing scenarios and business continuity arrangements. Recovery options are capital, liquidity, restructuring and other measures a financial institution can implement in response to stress or expected stress to restore or maintain its viability or financial position. 

The recovery plan must be submitted annually to the UAE Central Bank and reviewed on a regular basis (at least annually for domestic systemically important banks, and generally otherwise at least every two years for other financial institutions). 

Failure to comply with the Recovery Planning Regulation may result in penalties being imposed, which may include supervisory action and administrative or financial sanctions. 

Amended SCA Corporate Governance Code

Public joint stock companies whose securities are listed on the Dubai Financial Market (DFM) or the Abu Dhabi Securities Exchange (ADX) must comply with revised corporate governance rules issued by the Securities and Commodities Authority (the “SCA”) in January 2024. The corporate governance rules are set out in SCA Board of Directors’ Decision No.(3/RM) of 2020 (the “Governance Code”), the most recent amendments to which are set out in SCA’s Board of Directors Decision No.(2/R.M) of 2024. 

The Governance Code applies to listed UAE companies, their board members, managers, chairman, and auditors (except for banks and financial institutions that are subject to the regulation of the UAE Central Bank). The framework of rules addresses matter such as board composition, board meetings and resolutions, registers of insiders and related parties, investor relations, auditors, committees and risk and compliance matters.

Key areas that have been updated in the latest changes to the Governance Code include:

  • at least one third of the members of the Board must be non-executive and independent;
  • a Managing Director may not act as the chief executive officer or general manager of any other company;
  • minimum qualifications for the Secretary of the Board of Directors require a university degree and relevant practical experience; and
  • the definition of related parties is extended to include a company’s parent company and its significant shareholders.

The revised Governance Code also expressly confirms that companies in free zone companies and financial free zone companies are exempt.

New Finance Companies Regulations regulate BNPL

"Buy-now, pay-later" (“BNPL”) activities are regulated by the UAE Central Bank for the first time pursuant to the new Finance Companies Regulation (“Finance Companies Regulation”) issued in September 2023 (UAE Central Bank Circular No. 3/2023). The Finance Companies Regulation repealed and replaced the previous Finance Companies Regulation issued in 2018. 

Under the new framework, BNPL activities are regulated as a form of “Short-Term Credit”, defined as any credit granted to a borrower for a period of not more than twelve months, for the express purpose of purchasing specified, identifiable goods or services, without interest being charged, a lien being placed against collateral, or a security deposit being required from the borrower. 

“Restricted Licence Finance Companies” may offer Short-Term Credit facilities, and Finance Companies may contract with agents to offer Short-Term Credit facilities. A licence is required to carry out these activities in the UAE. Generally, a license for a Restricted Licence Finance Company will be granted for an initial period of three years (which is renewable for subsequent three-year periods).

The provision of Short-Term Credit facilities is subject to caps on the amount of credit that may be made available to a borrower, caps on the total fees charged to a borrower and providers must comply with consumer protection rules published by the UAE Central Bank. 

Revised moveable assets registration fees

The fees applicable to registrations relating to security over moveable assets on the UAE’s online moveable assets register, the Emirates Integrated Registries Company (the “EIRC”), have changed with effect from February 2024. Movable assets may be mortgaged in accordance with Federal Law No.4 of 2020 on securing the rights in moveables and related implementing regulations, set out in Cabinet Decision No.29 of 2021, as amended by Cabinet Decision No.129 of 2023. 

The fees payable to register security with the EIRC are now tiered according to the period of the notice (less than 12 months, 12-24 months, 2-5 years, 5-10 years or 10 years or more), rather than a flat fee of AED 100, as previously. The list of actions capable of being registered with the EIRC for which the EIRC charges a fee is also more detailed and now includes, for example, the registration extension and enforcement actions.

UAE Federal Supreme Court decision restricts compound interest

The UAE Federal Supreme Court has affirmed statutory restrictions on compound interest set out in Federal Law No. 50 of 2022 (the “Commercial Transactions Law”) and Federal Decree Law No.14 of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities (as amended) (the “Banking Law”). 

In Appeal No.1254 of 2023 issued on 10 January 2024, the Federal Supreme Court dismissed an appeal against a judgment of the lower court for payment of principal and interest under a credit facility in which an expert’s report was determined to be flawed for several reasons, including because the basis of the interest calculation involved compounding interest. 

The Commercial Transactions Law expressly prohibits the charging of compound interest. Prior to the enactment of the new Commercial Transactions Law in 2022, compound interest was not expressly regulated and the UAE courts had reached different conclusions in relation to the validity and enforceability of compound interest provisions. An amendment to the Banking Law also enacted in 2022 (Federal Law No. 23 of 2022) provides that banks and financial institutions may not charge compound interest. 

Saudi Arabia

Revised Public Sector Participation Law implementing regulations

The implementing regulations under the Private Sector Participation (“PSP”) law were amended in December 2023 pursuant to Saudi Arabia Administrative Decision No. 1/4/2023/1445 on The Implementing Regulation of the Privatisation Law, which amend Saudi Arabia Administrative Decision No. Q/9/2021/1443 dated 23/04/1443H.

The PSP Law, and accompanying implementing regulations, set out a comprehensive framework for the regulation of arrangements between the Saudi Arabian government and private sector entities in relation to the provision of infrastructure and other public services projects, including public private partnerships transactions and divestments. The implementing regulations address specific matters such as the de minimis value thresholds for PSP projects which must be met in order for the PSP Law to apply, the processes for obtaining Government approvals required for a PSP project, together with procurement methods and processes. The changes address various aspects of the regulations, including relating to approvals, requests for proposals, financial proposals and environmental, social and governance (ESG) matters. 

The Privatisation Program is one of the key Vision Realisation Programs under Vision 2030 which is driving private sector growth. Led by the National Centre for Privatisation & PPP, the Privatisation Program aims to unlock state-owned assets for the private sector and privatise selected Government services.

Saudi Arabia adopts GCC rules on the passporting of financial products

Saudi Arabia has adopted The Regulatory Framework for the Passporting of Financial Products Among Financial Market Regulators in GCC States. Cabinet Decision No. 536 of 1445 On Approving the Regulatory Framework for the Passporting of Financial Products Among Financial Market Regulators in GCC States was issued on 2 January 2024 (corresponding to 20 Jumada Al-Thani 1445 H). 

The stated aim of the framework is to set out a common regulatory framework for the national regulators in the GCC states to achieve regulatory coordination with regard to the passporting of financial products registered in their jurisdictions. This would enable GCC residents and companies to invest and trade in the financial markets in the GCC member states according to the common rules. The passporting regulations, which will be recognised by each GCC member state, will set out the requirements for registering financial products to be promoted across the GCC. Registered financial products must meet the minimum standards specified in the passporting regulations. It is expected that the Committee of Heads of Financial Market Authorities will agree on passporting regulations after the framework has come into force. 

Saudi Central Bank regulates BNPL activities

Businesses carrying out, or seeking to carry out, “buy-now, pay-later” (“BNPL”) activities in Saudi Arabia must now obtain a licence from the Saudi Central Bank (“SAMA”) and comply with new Rules for Regulating Buy-Now-Pay-Later Companies (“BNPL Rules”) issued by SAMA on 15 November 2023 (corresponding to 1 Jumada Al-Awwal 1445 H).

The BNPL Rules permit joint stock companies licensed by SAMA to carry out BNPL activity, which is defined a type of financing that allows a consumer to purchase goods or services without an additional cost for deferred payments.

Key requirements for companies to engage in BNPL activity include minimum capital requirements and limits on the total outstanding finance made available by the company, requirements relating to those in management positions in the company, and compliance with the Responsible Lending Principles for Retail Consumers issued by SAMA. Terms and conditions entered into between the company and its borrowers must be presented clearly, must be easy to understand, not misleading and contain the specified minimum requirements. Purchases must be denominated in Saudi Riyal. 

Consultation on Key Principles of Governance in Financial Institutions

Changes are expected to be made to SAMA’s Key Principles of Governance in Financial Institutions under the Control and Supervision of the Saudi Central Bank, further to a public consultation in December 2023. 

The Key Principles set certain minimum requirements for the effective management of financial institutions licensed and regulated by SAMA, ranging from the qualifications and responsibilities of Board members to the rights of shareholders. The amendments are proposed to ensure alignment with the Companies Law (Royal Decree No. M/132 dated 1/12/1443H (corresponding to 30 June 2022), which introduced significant changes to the companies’ law regime, when it came into force in January 2023. Further, the changes are also reported to reflect aspects of international “best practice” standards relating to the regulation of financial institutions. 

GCC

Agents no longer required for foreign companies doing business in Kuwait

A foreign company may establish a branch to carry out its activities in Kuwait, without appointing a local agent following amendments to Decree No.68 of 1980 regarding Commercial Law (pursuant to Kuwait Law No.1 of 2024). Existing restrictions on foreign investment in Kuwait set out in the Kuwait Direct Investment Promotion Law (Law No.116 of 2013), which restrict foreign companies from wholly owning Kuwait companies and impose minimum national shareholding requirements, remain. 

Kuwait Law No.1 of 2024 also enables foreign companies to bid for public tenders in Kuwait, without appointing a local agent or setting up a company in Kuwait, by amending Law No.49 of 2016 regarding the Public Tenders Law (pursuant to Kuwait Law No.1 of 2024).

Linklaters Legal Outlook 2024

Our leading Legal Outlook series brings together analysis and insights from our lawyers around the world. Three overarching global themes set the context for our legal outlook for 2024:

  • Ongoing challenges in the investment environment from economic and geopolitical factors
  • The challenge of hitting net zero
  • The impact of AI

Successful legal teams will be alert to these themes as they steer businesses through an increasingly fragmented international order. Click here to explore our global themes for 2024, as well as our in depth series of publications on key themes and topics for the year ahead.

 

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