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GCC Quarterly Review - Q2 2024

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

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Welcome to the Q2 edition of our GCC Quarterly Review

The second 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 considers changes to sustainable finance framework

The ADGM is proposing to enhance aspects of its sustainable finance regulatory, first adopted in July 2023. The framework comprises rules on sustainability-orientated investment green and climate transition funds and portfolios, green bonds and Sukuk, as well as requirements for environmental, social and governance (ESG) disclosures by ADGM companies.

Under the proposals (set out in the ADGM’s Discussion Paper No. 1 of 2024), the ADGM proposes to provide clarity around regulatory expectations for ESG-labelled funds and portfolios, including the use of ESG taxonomies and attestation and ESG indices, to address the risks of “greenwashing”. These proposals draw on the approach of international regulators in this area and feedback from market participants. 

The ADGM is also considering adopting enforceable requirements for ADGM-licensed financial services firms, and potentially all ADGM-licensed entities, relating to the effective management of climate-related risks, which would be a significant step-change to the current approach of non-binding guidance.

The consultation closed on 19 July 2024. Companies, asset managers and funds in the ADGM should carefully consider the impact of the proposed changes. 

You can find out more about global sustainable finance initiatives in our Sustainable Finance Tracker, and ESG in our Sustainable Futures blog. 

To read more about global ESG regulation, download your copy of our global guide ESG Legal Outlook 2024. 
 

Proposed changes to the Single Family Office regime

Singe family offices (“SFOs”) set up in the ADGM to manage family wealth and assets should be aware of proposed changes set out in the ADGM’s Consultation Paper No. 5 of 2024.

The proposed amendments provide more clarity as to the specific activities an SFO can carry out, including strategic and risk management services, legal and regulatory services, financial services and holding company activities. These categories recognise the broad range of business interests and activities of SFOs. New minimum requirements relating to the asset value of the SFO, or the family would be introduced to ensure that the SFO to contributes to the local economy. To date, the ADGM has not imposed asset-based entry level criteria for family offices, unlike other jurisdictions (such as the DIFC). Certain changes are also proposed to the Restricted Scope Company regime, which is one of the vehicles SFOs may consider to structure family interests. 

The consultation period closed on 14 July 2024.

ADGM considers changes to sustainable finance framework
Proposed changes to the Single Family Office regime

Dubai International Financial Centre (DIFC)

Proposals regarding the application of English common law in the DIFC

The DIFC is proposing to clarify the sources of law and the interpretation of laws in order to address uncertainties, as described in Consultation Paper No.1 of 2024 and as raised in the DIFC Court judgment in The Industrial Group Limited v Abdelazim EL Sheikh EL Fadil Hamid [2022] DIFC CA 005/006. If enacted, the changes would see the DIFC align its legal system more closely with English common law. 

Currently, DIFC law is determined by the applicable DIFC laws. Aspects of DIFC laws may be drawn from the laws of different jurisdictions (common law and non-common law) or international model laws, such as those published by UNCITRAL. As part of their decision-making process and to assist in interpreting DIFC laws, the DIFC Courts may consider decisions from other jurisdictions. The question arises as to which jurisdiction’s courts the DIFC Courts should look to as an interpretative aid to determine the content of the principles relevant in proceedings before them and whether common law can be used as an interpretative aid in respect of DIFC laws that are of a non-common law origin.

Under proposed changes to the DIFC Law on the Application of Civil and Commercial Laws in the DIFC (DIFC Law No. 3 of 2004), DIFC law would be determined in the first instance by the applicable DIFC laws, as interpreted and developed by the DIFC Courts. Where there is a doctrine, cause of action, defence or remedy exists under the common law of England and Wales that does not exist under DIFC law, the DIFC Courts would have the discretion to determine that such doctrine, cause of action, defence or remedy exists in DIFC law (where appropriate, and provided not expressly or impliedly excluded under DIFC law), and apply it, if appropriate and subject to modification if required. 

Further, the proposals would enable the DIFC Courts to be guided in their interpretation of DIFC laws by the principles developed in respect of analogous laws in established common law jurisdictions, such as England and Wales, Australia or Singapore. This interpretative approach would apply including where the relevant DIFC law is based on a non-common law source or an international model law. International jurisprudence, interpretative aids and commentary published by international bodies may also be taken into account in the DIFC Court’s interpretation of DIFC laws based on international model laws.

This approach, if enacted, should provide greater predictability and certainty as to DIFC law and its interpretation and align DIFC law more closely with English common law. This is likely to be welcomed by international parties involved in transactions with a nexus to the DIFC.

DIFC Court clarifies approach to enforcing interim arbitral awards

Parties to international arbitrations who seek to enforce provisional arbitration awards in the DIFC may now be more confident that enforcement proceedings in the DIFC should be successful.  

The DIFC Court of Appeal considered the issue of whether under the DIFC Arbitration Law (DIFC Law No. 1 of 2008 (as amended)), the DIFC Court has jurisdiction to recognise and enforce interim measures where the seat of the arbitration is not the DIFC, where those interim measures take the form of an award (Neal v. Nadir [2024] DIFC A 001). It was held that provisional arbitration awards are enforceable within the DIFC, even if issued by tribunals seated outside the DIFC. 

The Court of Appeal’s interpretation was that a provisional or interim award should not be considered differently from a partial or final award, and any such binding award is capable of  recognition and enforcement regardless of the jurisdiction in which it was issued in accordance with the DIFC Arbitration Law. It is the binding nature of the award which is critical.

Crypto token regime in the DIFC updated

The Dubai Financial Services Authority recently announced some amendments to its crypto token regime within the DIFC arising from the proposals in Consultation Paper 153 – Updates to the Crypto Token regime, which was published in January 2024. Some of the key changes include (i) the introduction of a defined recognition criteria for Fiat Crypto Tokens (e.g. Stablecoins); (ii) the ability to offer Units of External and Foreign Funds which invest in recognised Crypto Tokens; (iii) the ability for Domestic Qualified Investor Funds to invest (subject to prescribed thresholds) in unrecognised Crypto Tokens, (iv) the ability for DIFC custodians to hold unrecognised Crypto Tokens in the DIFC; (v) amendments to the rulebooks to capture staking services; and (vi) providing further guidance on financial crime risks (e.g. by bringing in the “travel rule”). These enhancements are a significant step towards refining and developing the regulatory environment for Crypto Tokens in the Dubai International Financial Centre.
Proposals regarding the application of English common law in the DIFC
DIFC Court clarifies approach to enforcing interim arbitral awards
Crypto token regime in the DIFC updated

UAE

New Dubai judicial authority to resolve conflicts between Emirate courts

Parties now can refer jurisdictional conflicts and conflicts of judgments arising between the various courts and judicial committees in the Emirate of Dubai to the Judicial Authority for Resolving Jurisdictional Conflicts, established by Decree No. 29 of 2024. 

The previous law establishing the Judicial Tribunal for the Dubai Courts and the DIFC Courts, established in 2016 to rule on conflicts of jurisdiction and conflicts of judgments arising solely between the DIFC Courts and the Dubai Courts, has been repealed (Dubai Decree No. 19 of 2016). The scope of the Judicial Authority for Resolving Jurisdictional Conflicts’ authority to determine conflicts is wider than the previous tribunal, as it includes conflicts relating not just to the Dubai Courts and DIFC Courts, but also other judicial bodies, such as the Rental Disputes Resolution Centre, and other specialist judicial committees formed by a decree or a decision of the Ruler. 

The Judicial Authority for Resolving Jurisdictional Conflicts may determine the competent court to hear a dispute, which may result in proceedings being transferred between courts. Decisions made by the Judicial Authority are final and cannot be appealed, and the established legal rules by the Judicial Authority become binding “judicial principles" for all courts, including DIFC Courts.

New UAE Sandbox Regulations

The new Sandbox Conditions Regulation, effective from 15 April 2024, creates a controlled environment for fintech startups and established companies to test new and innovative products, services and business models in the financial services sector for a defined duration of six to twelve months. The UAE Central Bank will work with each applicant, on a case-by-case basis, to evaluate the innovative products, services, solutions or business models to identify legal and regulatory obligations, which will be applied throughout the duration of the sandbox. In order to participate in the sandbox, applicants must meet certain minimum eligibility criteria (e.g. the proposal is technologically innovative, to the benefit of consumers and/or the financial services industry and intended to be deployed more widely in the UAE). At the end of the testing period, participants will either be subject to a streamlined procedure to obtain a licence or otherwise be asked to cease all or part of their business.

New UAE Payment Token Services Regulation

The eagerly anticipated UAE Payment Token Services Regulation was published in June 2024 representing a significant advancement in the regulatory framework governing digital payment services in the UAE. The Payment Token Services Regulation sets out a comprehensive framework for licensing and supervising digital payment services, including payment token issuance, payment token conversion and payment token custody and transfer. The Regulation comes into force one month from the date of publication in the Official Gazette, although the regulation introduces a one-year transition period for certain aspects of the regulation. Only companies incorporated in the UAE or free zones (other than DIFC and ADGM) may apply for a licence. Foreign entities (which would include DIFC and ADGM entities) may apply for registration as a foreign payment token issuer. This development also brings certain types of stablecoins within the regulatory perimeter for payment services for the first time in the UAE.

UAE Central Bank issues Open Finance Regulations

The UAE Central Bank has issued an Open Finance Regulation as part of the UAE Central Bank’s open finance vision. The framework goes further than existing open banking initiatives in European jurisdictions and seeks to use customers’ consented financial data to empower greater customer choice and control over their information whilst facilitating competition amongst financial products and services. The Open Finance Framework consists of a Trust Framework, an API Hub and Common Infrastructural Services, which provide Open Finance access for the cross-sectoral sharing of data and the initiation of Transactions on behalf of Users and establishes a new category of regulatory license for providers of Open Finance Services.

You can read more fintech insights, updates and news from our dedicated fintech lawyers in our FintechLinks blog.

UAE considers adoption of global minimum tax rules

The UAE Government is considering the implementation of the Global Minimum Tax (GMT) or Global Anti-Base Erosion Model Rules (Pillar Two) (the “GloBE Rules”) in the UAE. The GloBE Rules ensure large multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. The proposals are relevant for all businesses operating in the UAE that are part of a multinational group with global revenue exceeding EUR 750 million. The Ministry of Finance consultation closed in April 2024. 

UAE financial regulators announce sustainability disclosure principles

New Principles for Sustainability-Related Disclosures for Reporting Entities were announced in June 2024 by the UAE Sustainable Finance Working Group (SFWG) to address minimum expectations for environmental, social, and governance (ESG) disclosures for financial institutions across the UAE. The principles seek to align with aspects of international best practice in relation to the reporting, transparency, relevance and quality of sustainability-related disclosures. It is expected that financial regulators across the UAE will adopt relevant principles into the disclosure frameworks within their respective jurisdictions following the announcement. 

Those operating in the financial services sector in the UAE, DIFC and ADGM should consider the impact of the principles in their reporting and product disclosure practices and be alert to reform proposals by regulators in the UAE flowing from the principles.

You can find out more about global sustainable finance initiatives in our Sustainable Finance Tracker, and ESG in our Sustainable Futures blog. 

To read more about global ESG regulation, download your copy of our global guide ESG Legal Outlook 2024. 
 
New Dubai judicial authority to resolve conflicts between Emirate courts
New UAE Sandbox Regulations
New UAE Payment Token Services Regulation
UAE Central Bank issues Open Finance Regulations
UAE considers adoption of global minimum tax rules
UAE financial regulators announce sustainability disclosure principles

Saudi Arabia

Guidelines for Non-Saudi Companies Listing in Saudi Arabia

The Saudi Exchange has published a Guideline Manual for Foreign Companies Offering and Listing on the Main Market. It provides guidance for companies seeking to list on the Saudi Exchange to assist them in obtaining the required approvals and complying with applicable regulations and other rules. Foreign companies are permitted to dual-list or cross-list their shares on the Saudi Exchange.

Foreign issuers interested in a secondary listing on the Main Market may request a preliminary assessment by the Saudi Exchange prior to submitting an application for approval for the offering and listing. Once initial approval is obtained, the foreign company may start the formal offering and listing application process with their financial advisor. 

The Guidelines address eligibility requirements. The foreign company must be a joint stock company (or equivalent) and listed concurrently on the market of its jurisdiction of incorporation, and the regulatory authority in that jurisdiction must be a member of the Multilateral Memorandum of Understanding (MMoU) of the International Organization of Securities Commissions (IOSCO). Other requirements include minimum market capitalisation (which must not be less than SAR 4 billion), adequate Directors & Officers insurance cover, a requirement for at least two members of the Board of Directors to be resident in the Kingdom, compliance with prospectus requirements, continuous obligations under the Rules on the Offer of Securities and Continuing Obligations and disclosure obligations and requirements as to financial statements and reporting. 

The Guidelines also clarify which regulations or instructions issued by the Government of Saudi Arabia or Government authorities (or aspects of them) foreign companies are required to adhere.

Saudi Arabia publishes Green Financing Framework

A new Green Financing Framework regulates green bonds and Sukuk issued by the Kingdom of Saudi Arabia to raise finance for projects with environmentally sustainable benefits across eight project categories (including renewable energy, clean transportation and climate change adaptation). Issuances will be overseen by a new Sustainable Financing Committee.

The new framework, introduced in March 2024, is integral to the Kingdom’s economic diversification and sustainability initiatives under the Vision 2023 agenda and forms part of the global wave of regulatory change in the sustainable finance landscape. The framework is aligned with the four core components of the International Capital Market Association's (ICMA) Green Bond Principles 2021 (including June 2022, Appendix 1). It may support the Kingdom in placing itself at the forefront of the growing global market for green finance.

The Green Financing Framework sets out key requirements as to: 

  • project evaluation and selection process;
  • the use of proceeds, requiring an amount equal to the net proceeds of any green bond or Sukuk issued by the Kingdom of Saudi Arabia to be allocated to finance new (or re-finance existing) projects which qualify under the eligible project categories;
  • the management of proceeds, including timescales for allocating net proceeds; 
  • publicity and reporting requirements; and
  • pre- and post-issuance verification procedures. As at March 2024, Moody’s Investors Service assigned an SQS3 sustainability quality score (good) to the Kingdom’s green financing framework.
You can find out more about global sustainable finance initiatives in our Sustainable Finance Tracker, and ESG in our Sustainable Futures blog. 

To read more about global ESG regulation, download your copy of our global guide ESG Legal Outlook 2024. 
 
Guidelines for Non-Saudi Companies Listing in Saudi Arabia
Saudi Arabia publishes Green Financing Framework

Global

Accounting and Auditing Organization for Islamic Financial Institutions proposes new rules for Sukuk

The exposure draft of a new global standard on Sukuk, Shari’ah Standard No. (62): Sukuk, proposed by the Accounting and Auditing Organization for Islamic Financial Institutions (“AAOIFI”) is a hot topic for discussion by market participants in the global Sukuk market. The deadline for comments on the exposure draft has been extended to 31 July 2024. 

The proposed Standard is comprehensive in its approach to regulating Sukuk. Aspects of the proposals, if implemented in their current form, would represent a departure from existing industry norms in the approach to structuring and documenting Sukuk. Issuers, trustees, investors and their professional advisers will need to consider the impact of the requirements in relation to the underlying assets, and, in particular, how to align the proposals for legal transfers of assets to certificate holders with local law restrictions (such as foreign investment or other restrictions on disposals of certain asset categories) and the prevailing practice in many jurisdictions of asset-based structures which rely on the transfer of only beneficial title to assets. Other aspects of the proposed Standard would have the effect of altering the risk profile for, and potential tradeability of, Sukuk issuances, which are likely to be a key concern for investors. The draft Standard and the industry discussion surrounding it highlight the complexity and nuances of balancing commercial drivers and practices across different geographies with Shari’ah principles. 

AAOIFI Shari’ah standards are adopted as mandatory regulatory requirements in many countries and jurisdictions around the world, including the UAE, while other jurisdictions may draw on AAOIFI Shari’ah standards as the legal basis of their national standards or recommend the standards as guidelines. 
AAOIFI proposes new rules for Sukuk

Global Guide: Joint Ventures 

Joint ventures pose their own challenges, especially when entering into new areas. Commercial issues are key, such as choosing the right partner and building safeguards around valuable assets. Often it will be necessary to consider multiple jurisdictions. Investors must also understand the legal environment and any particular challenges that it imposes.

Our updated Global Guide is designed to help businesses navigate the legal challenges of international joint ventures in 25 jurisdictions, including the UAE and Saudi Arabia. Topics covered include the types of entities used for joint ventures, foreign investment restrictions, registration formalities and shareholder influence.

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