Lending and taking security in the United Arab Emirates: overview

A Q&A guide to lending and taking security in the United Arab Emirates. The Q&A gives a high level overview of the lending market, forms of security over assets, special purpose vehicles in secured lending, quasi-security, guarantees, and loan agreements. It covers creation and registration requirements for security interests; problem assets over which security is difficult to grant; risk areas for lenders; structuring the priority of debt; debt trading and transfer mechanisms; agent and trust concepts; enforcement of security interests and borrower insolvency; cross-border issues on loans; taxes; and proposals for reform.

Implementing Regulation to the new Movable Security Registration Law

Since the issuance of Federal Law No. 4 of 2020 on Guaranteeing Rights Related to Movables (the Mortgage Law) the business community, particularly banks and financial institutions, have been eagerly awaiting the publication of the implementing regulations to the Mortgage Law, which would provide details on a number of key issues including the specific procedure for registering security on the new register; rules applicable to taking security over intangible assets; accessing information from the new security register; and the treatment of the existing security (particularly security that had been registered under the previous movables security registration regime). The implementing regulations were published in the Official Gazette as Cabinet Decision No. 29 of 2021 on the Implementing Regulations for Federal Law No. 4 of 2020 on Securing Rights Over Movable Property (the Regulations) on 21 March 2021 and came into effect the following day.


Whilst the Regulations do not address the creation of the security register or appointment of the registrar, (both of these issues will be clarified following the publication of the cabinet decision which will create the registry and identify the registrar), they do introduce the following key developments to the security registration regime.


How to make a registration


The registration process is relatively straightforward. Firstly, the applicant needs to establish an account with the registrar (only possible following the appointment of the registrar). The online registration must include the following information:


  1. details of the (i) security provider including its name, nationality/registration number (as applicable), identity card or passport number (in case of natural person) or license (in case of a legal person) and (ii) secured party including the name, address and email address (together, the Identification Information);
  2. description of the security assets including the specific type and class of assets and confirmation of whether the assets are existing or future assets; and
  3. description of the secured obligations, whether it is a specific amount, subject to an upper limit and/or refers to all obligations owed to the secured party.


In contrast to the earlier registration procedure under Federal Law No. 20 of 2016 (the Old Mortgage Law), it is no longer necessary to submit a completed security agreement between the secured party and the security provider, at the time of the registration application.


The registration fees range from AED 50 to AED 200 per registration, depending on the type of security registration. The register shall issue an electronic confirmation upon the completion of the registration.


Liability for registration


The Regulations provide that whilst the registrar can reject a registration application, if it does not contain the mandatory information therein, the registrar shall not review the contents of the registration or the accuracy or completeness of any information in the registration. These provisions are accompanied by a general move towards placing a high degree of responsibility for the registration, on the applicant.


In particular, the registration only becomes effective once it has been entered into the register database in a manner that allows the declaration to appear when searching the register. Merely completing the registration exercise does not guarantee enforceability. The registration may be unenforceable if (i) there is an error in entering any of the Identification Information, which leads to an inability to retrieve the information in the registration when conducting a search of the register database or, (ii) any other information in the registration which reasonably misleads anyone conducting a search of the register database. Whilst the Mortgage Law and Regulations do not provide any guidance on what constitutes “reasonably misleads”, we believe that this will include instances where information used to conduct searches in the database, as identified in the Regulations (see below), has been entered incorrectly. Given that any errors in the application could render the registration ineffective, applicants would be well advised to seek professional advice when completing registrations.


Accessing information from the register database


A person can search the register database by entering the registration number or the Identification Information. A person may also print a search report containing information regarding the registration, including its time of creation, details of the parties on the registration, description of the secured assets, validity period and any other data requested by the registrar.


Security over intangibles


The Mortgage Law provided that the creation of a security interest, its enforcement and priority relating to intangible assets shall be subject to the law of domicile (as identified in the Regulations) of the security provider. The Regulations provide that domicile shall be determined by looking to the country in which the security provider’s workplace is located or the country in which its head office is located (if it has operations in more than one country). Caution should be exercised in determining the domicile of a security provider, particularly when dealing with overseas companies / branches, or UAE companies which only have overseas operations.


Taking the secured assets without the Court’s assistance


A secured party may seize and dispose of secured assets, without the need to seek a specific court order, by sending a notice to exercise its right to seize and dispose of the assets to the security provider, the underlying obligor, other parties with a security interest in the relevant assets and other interested parties. The Regulations provide that such notice should also include details of the assets that will be seized and disposed, the method of execution, and the time and place of the disposal.


The prospect of being able to take quick unilateral action to seize and enforce a security interest may seem appealing, particularly considering the time and effort required to secure a court order. However, this will entail the secured party assuming responsibility for disposing of the assets, settling its debts (less, any reasonable execution expenses) and those of other secured parties, in order of priority. Any one of these obligations could expose the secured party to potential legal action by the security provider, underlying obligor and other secured parties, e.g., claims that the assets were sold at an undervalue or the proceeds were not correctly distributed amongst other secured parties. In any event, exercising this option will require the co-operation of other parties (e.g., third parties with possession of the secured assets) failing which the secured party will have no option but to enforce through the courts.


In relation to secured bank account, if the secured party is also the account bank, then it can exercise its security interest over the secured account, without a court order. This can also be achieved under the customary set-off provisions in most account opening documents. In the case where the secured account is held with a third party bank the security provider, secured party, account bank can enter into a side agreement to establish control and management over the secured account, in favour of the secured party. We note that such provisions are already customary in most account pledge agreements, involving third party account banks.


Existing security under the Old Mortgage Law


The Mortgage Law repealed the Old Mortgage Law in its entirety. Furthermore, all circulars, resolutions and regulations relating to the Old Mortgage remain valid (to the extent they are consistent with the Mortgage Law), until replaced by the Regulations and new resolutions and circulars. Consequently, it was not clear how a secured party, with a registration on the existing register, would exercise its rights to request the courts to seize and dispose of secured assets, when the very law providing such rights had been repealed.


The Regulations have confirmed that any existing registration under the Old Mortgage Law, shall remain effective against third parties, until it is terminated in accordance with the provisions of the Mortgage Law. Whilst this implies that any existing registrations will be effective against third parties it does not address enforcement against the security provider (e.g., how would the security party enforce its right to seize and dispose of secured assets that are in the possession of the security provider?). There is also little to no guidance on how to enforce an existing registration, under the Old Mortgage Law, before the courts (e.g., would you use the enforcement procedure under the Old Mortgage Law or the Mortgage Law?). The situation is further complicated by the fact that the Old Mortgage Law was, itself, in its infancy and remined largely untested before the local courts.


In light of the above and given the relatively modest fees for registering existing security interest(s) in the new register (i.e., AED 50 per registration), secured parties would be urged to register all eligible existing security interests in the new register.


The Mortgage Law provides a period of 6 months following the issuance of the Regulations to register existing security interests in the new security register. It remains to be seen whether the new register will be established and operational before this deadline. ■

DIFC Increases Scope and Fines

The DIFC has expanded the scope of the common reporting standards, meaning more people must make filings plus increased fines for non-compliance.


With effect from 16 August 2020, DIFC Law 6 of 2020 (the CRS Law Amendment Law) was enacted to amend the Common Reporting Standard (CRS) Law, DIFC Law 2 of 2018 (the CRS Law). This enactment follows the issuance of the new CRS Regulations, which came into effect on 30 July 2020.


Briefly, the CRS Law serves to apply CRS on the financial institutions within the DIFC (known as the ‘Reporting Financial Institutions’ in the CRS Law). CRS is a standard developed by the Organisation for Economic Cooperation and Development (OECD) by which the DIFC (and other participating jurisdictions) are required to obtain financial account information from financial institutions and automatically exchange them with the other participating jurisdictions on an annual basis. Under the CRS Law, Reporting Financial Institutions that fail to report such information shall be subject to a fine for non-compliance, ranging between USD 280 (with an additional fine per each day of non-compliance up to a limit) for a minor non-compliance and USD 70,000 for a significant non-compliance. The main purpose behind CRS is to limit tax evasion.


The CRS Law Amendment Law made the following changes to the CRS Law:


  • The CRS Law now additionally applies to a Controlling Person (as defined in the CRS Law). This means that where an account with the Reporting Financial Institution is held by an entity, the natural persons exercising control over such entity are also subject to the CRS Law.


  • New offences and penalties are introduced in the CRS Law. An account holder or a Controlling Person that provides inaccurate or incorrect self-certifications where he knew or ought to have known to be inaccurate or incorrect shall be fined USD 5,500. A Reporting Financial Institution that fails to obtain valid self-certifications when a new account is set up shall be fined USD 300.


The amendments to the CRS Law are aimed to elevate the compliance requirements of Reporting Financial Institutions thereby aligning DIFC’s legal and regulatory framework with international best practice. ■

New Law on Registering Security over Movable Assets

Federal Law No. 4 of 2020 on Guaranteeing Rights Related to Movables (the New Mortgage Law), which came into effect on 1 June 2020, has updated the regime for registering security interests over movable assets in the UAE.


The new regime


The New Mortgage Law repealed Federal Law No. 20 of 2016 on Mortgaging of Movable Property as Security for Debts (the Old Mortgage Law). The Old Mortgage Law had been a welcome development as it introduced a whole new regime for registering a security interest over movable assets located in the UAE and addressed a number of shortcomings inherent under the earlier security registration regime, including the ability to create a security interest akin to a common law “floating charge” over future assets, dispensing with the requirement to deliver possession of the secured asset, the ability to perfect a security interest through registration, and a public register for registered security interests.


Whilst the New Mortgage Law retains most of the positive features of the Old Mortgage Law (as discussed above), it contains some key differences (as outlined below). The most significant differences are the introduction of a new security registry, to be established by a resolution of the Council of Ministers, and new implementing regulations (the Implementing Regulations) to be issued by the Ministry of Finance, which will regulate the operation of the new security registry. The New Mortgage Law provides that the Implementing Regulations will be issued within six months of the publication date of the New Mortgage Law (i.e., by 2 December 2020). This new security registry replaces the current Emirates Movable Collateral Registry (EMCR) which is operated by the Emirates Development Bank.


Key developments


Whilst the New Mortgage Law largely replicates the provisions of the Old Mortgage Law, it also introduces some other key changes including:


1.  The list of assets that cannot be registered in the security register has been reduced and no longer includes (i) objects intended for personal or home use necessary for the person and his dependents, unless used as a mortgaged property to finance the purchase thereof, (ii) entitlements of the insured or beneficiary of an insurance contract, unless these entitlements are considered proceeds of the security asset and (iii) future rights entailed from inheritance or Will.


2. The definition of an accounts receivable (i.e., a right to receive money owed to the security provider by a third party) now specifically excludes the right to collect payments established in endorsable deeds, the right to collect payments deposited in accounts payable at the banks and the right to collect payments under securities/financial instruments.


3. It is now possible to register a security interest before the conclusion of the relevant security contract (i.e., the agreement creating the security interest), provided the security provider has given written consent to the same.


4. If secured assets are sold or disposed of in the ordinary course of business, then they shall pass to the purchaser free from any security interest, provided that the purchaser was unaware of the secured party’s interest over the security assets, at the time that it entered into the sale agreement. This is in contrast to the position under the Old Mortgage Law, where the goods could be disposed of (without any security interest) even if the purchaser was aware of the security interest, provided that the disposal was made at market price.


5. Where the security interest relates to acquisition financing (for example, of equipment, inventory or IP rights), the security interest over the financed assets must be registered in the register within seven working days of the security provider gaining possession of the same.


6. In the event that multiple security interests are enforceable over the same fungible product or mass, these rights shall have equal priority status over the product or the mass and every secured party may claim their right from the product or the mass at the ratio of their security interest to the mass or the product at the time of integration.


7. A security interest under the provisions of the New Mortgage Law shall survive commencement of any bankruptcy procedures against the security provider and shall remain as such, and it shall retain the priority that it had prior to the commencement of the bankruptcy procedures. This is in contrast to the provisions of the Old Mortgage Law, which provided that none of the execution procedures on the mortgaged property under the Old Mortgage Law would be valid, in case of commencement of bankruptcy procedures against the security provider. This will be of particular concern to lenders who may need to enforce their security interests against bankrupt security providers.


Implementing Regulations


Like the Old Mortgage Law, the New Mortgage Law leaves a number of key procedural matters to be addressed by the Implementing Regulations. These include public access rights to the register, the requirements for registering a security interest in the security register, and additional priority terms associated with certain classes of security interests or assets. Whether the popular and useful features of the previous movable registration regime will be continued under the New Mortgage Law will be clear only once the Implementing Regulations have been issued.


Status of registered security in EMCR


Unfortunately, the New Mortgage Law makes no references to the security registered on the EMCR or the legal status of the same. The New Mortgage Law provides that any regulations, resolutions and decisions implemented under the Old Mortgage Law shall continue (until replaced by the Implementing Regulations), to the extent they do not conflict with the provisions of the New Mortgage Law. Combined with the fact that the Old Mortgage Law has been repealed in its entirety, this means that there is currently some uncertainty regarding the rights of a secured party which holds a registered security interest on the EMCR, in accordance with the Old Mortgage Law. In particular, it is not clear how the Courts would treat an application under the Old Mortgage Law (which has been repealed) to enforce a security interest registered on the EMCR. This issue needs to be urgently addressed, possibly through an amendment to the New Mortgage Law, providing recognition of the existing registered security rights under the Old Mortgage Law.


As a worst-case scenario, secured parties could find that their EMCR registered security interest does not give them any enforceability or other benefits under the Old Mortgage Law (e.g., as regards a security akin to a floating charge) or the New Mortgage Law. In this case the only option would be to enforce their contractual rights under the provisions of the relevant security agreements. This can cause additional complications for enforcement, particularly in the case of security agreements that are governed by foreign laws.


Actions by secured parties


In light of the above, parties with security interests registered on the EMCR should take urgent action, including:


  • Ensuring that the all security agreements are in compliance with their governing laws.


  • Remaining alert regarding further developments under the New Mortgage Law, particularly the issuance of the Implementing Regulations, so as to understand the new requirements for registering a security interest and ensure that they register any security interest with the new security registry within the six months of the Implementing Regulations coming into force (as required under the New Mortgage Law).


  • Undertaking a thorough review of all security interests registered on the EMCR, to understand their enforcement risk exposure. ■


* * * *


We are continuing to monitor developments with the New Mortgage Law and will provide further updates in due course. Please feel free to contact us should you wish to discuss any of the issues raised in this InBrief. 



Banking Regulation (UAE chapter), Lexology Getting The Deal Through

This volume in the Getting the Deal Through series provides an overview of the regulations governing the banking industry and comparative analysis of key issues. Topics covered include: regulatory framework, supervision and enforcement, capital requirements, ownership, restrictions and implications and changes in control.

Emirates Development Bank Appointed to Maintain Register of Finance Leases



Pursuant to UAE Federal Cabinet Resolution No. 56 of 2019, Emirates Development Bank has been appointed to maintain the register of finance lease contracts created pursuant to UAE Federal Law No. 8 of 2018 on Finance Lease (the Finance Lease Law or the Law).




The Finance Lease Law was promulgated in December 2018. This Law creates a register (the Register) pursuant to which “Finance Lease Contracts” shall be registered. A Finance Lease is defined in the Law as:  “A relationship whereby the Lessor acquires Leased Property for leasing purposes and, under a separate contract, leases such property to the Lessee for a specific period in accordance with the provisions hereof and offers the Lessee the option to own the Leased Property pursuant to the provisions hereof.” 1


Leased Property under the Law includes both personal and real property.2


In order for a lease to constitute a Finance Lease within the meaning of the Law it must include a rent-to-own option. A lease without an option to purchase would not fall within the scope of the Law. Whether intended or not, this requirement will have the practical effect of excluding a considerable number of leasing arrangements commonly practiced in the UAE from the scope of the Law. Also, whether intended or not, the Law will apply to Ijarah contracts used in Islamic financing whereby the purchase of property is facilitated by the lender purchasing the property and leasing it back to the customer on a lease-to-own basis.


The appointment of Emirates Development Bank to maintain the Register is a logical choice given that Emirates Development Bank already maintains the Emirates Movables Collateral Registry (EMCR) established pursuant to Federal Law No. 20 of 2016 on the Mortgage of Movable Property to Secure Debt.


UAE Federal Cabinet Resolution No. 56 of 2019 was published in the UAE Federal Gazette in August of 2019. As of the date of this inBrief, registration is not yet possible. Emirates Development Bank has not made public the timetable for launching the Register but this is expected in the near future.


Compliance Requirements and Further Legislation


The Finance Lease Law states that the Central Bank shall enact licensing regulations governing licensing the practice of Finance Lease activity in the UAE and may further license branches of foreign finance lease companies.3  The Central Bank has not yet issued such regulations. Guidance from the Central Bank in this regard is critical given that (i) Article 2(1) of the Law stipulates that Finance Lease activity may not be practiced in the UAE unless and until the Lessor has obtained a license to that effect from the Central Bank and (ii) Article 2(2) states that any Finance Lease concluded with a person unlicensed by the Central Bank shall be deemed null and void. Similarly, Article 3 of the Law stipulates that a Finance Lease contract must be registered in the Register, otherwise such contract shall be deemed null and void. The deadline for complying with the licensing and registration requirements under the Law is 31 December 2019.4


Given the draconian consequences of non-compliance, and in light of the fact that (i) the compliance deadline is approximately 10 weeks away, (ii) the Register has not yet been launched, and (iii) the Central Bank has not issued the licensing regulations contemplated by the Law, the question arises as to whether extensions will be granted. This remains to be seen. Other, somewhat less critical, legislation is also pending.


The Law contemplates Special Accounting Standards relating to Finance Leases to be created by resolution of the Minister of Finance, which resolution has not yet been issued.


Article 35 of the Law specifies a fine not exceeding AED 500,000 for violations of the Law but further contemplates that the Cabinet will issue a resolution specifying the amount of the fine prescribed for each violation. Cabinet Resolution No. 56 of 2019 did not address this issue. Accordingly, a further Cabinet resolution specifying the amount of such fines is awaited.


Article 37 of the Law contemplates a resolution of the Minister of Justice designating certain employees as judicial officers and vesting them with the authority to establish whatever is done in contravention of the Law. Such resolution has not yet been issued.




The appointment of Emirates Development Bank to maintain the Register is a positive development in the implementation of the Finance Lease Law. Further legislation contemplated by the Law is eagerly awaited by all parties affected by the Law, as is the launch of the Register. This includes finance lease companies that will need to obtain licenses from the Central Bank and lessors that are required to register existing Finance Lease Contracts by 31 December 2019. ■


1 See Article 1 of the Finance Lease Law.
2 The Finance Lease Law defines Leased Property as: “Each personal or real property which is useful to the usufructuary and is subject of the Finance Lease, inter alia, the on-plan subdivided real estate units that may be subject of legal dispositions in accordance with the provisions of legislation in force.
3 See Article 2(4) of the Finance Lease Law.
4 The Finance Lease Law was published in the Official Gazette on 31 December 2018 and came into effect the following day. Article 38 of the Law provides for (i) a one year grace period from the effective date of the Law for companies practicing Finance Leasing to obtain a license from the Central Bank and (ii) a one year grace period for Lessors to register Finance Leases in the Register.

Three Years On: The Bankruptcy Regime in the United Arab Emirates

As we approach the third anniversary of the implementation of the Bankruptcy Law, Charles Laubach and Rahat Dar take a look at the current insolvency framework available in the UAE (including in the two financial free zones: Dubai international Financial Centre at the Abu Dhabi Global Market, each of which has adopted its own insolvency rules) to consider whether the aspirations underpinning the Bankruptcy Law have been realised.

SCA issues guidelines for financial institutions on anti-money laundering

The past year has been a busy one for AML compliance in the UAE.


In October 2018, Federal Decree-Law 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations (AML Law) came into force. It contained features recommended by the Financial Action Task Force (FATF), and brought UAE laws in line with international AML standards.


The AML Law was followed by the implementing regulations in January 2019, which have helped bring further clarity to the intended operation of the AML Law. The Implementing Regulations were issued on 28 January 2019 pursuant to Cabinet Resolution 10 of 2019 (AML Regulations).


In May 2019, the UAE Securities and Commodities Authority (the SCA) promulgated guidelines for financial institutions on Anti- Money Laundering and Combating the Financing of Terrorism and Illegal Organisations (the AML Guidelines).


The AML Guidelines, resulting from a joint effort among the supervisory authorities of the UAE, set out the minimum expectations of the supervisory authorities regarding the factors that should be taken into consideration by financial institutions when identifying, assessing, and mitigating the risks of money-laundering, financing of terrorism, and financing of illegal organisations.


Do the AML Guidelines form part of the law?


The AML Guidelines do not constitute regulations or legislation. They are intended to be read together with the AML Law and Regulations as well as all other relevant Cabinet Resolutions and regulatory rulings currently in force in the UAE and the free zones. The AML Guidelines are not a replacement or substitution for any existing legal requirements or statutory obligations. The SCA has made it clear that, in the event of an inconsistency between the AML Guidelines and any legal or regulatory framework in place in the UAE, it is the latter that will prevail.


Who do the guidelines apply to?


As a starting point (with exceptions noted throughout the guidelines), the AML Guidelines apply to all financial institutions, and their directors, managers and employees, established or operating in the UAE or the UAE’s free zones, that establish or maintain business relationships with customers or engage in any of the financial activities or transactions or trade or business activities outlined in the AML Regulations.


Specifically, they are applicable to all such natural and legal persons in the following categories:


• banks, finance institutions, exchange houses, money service businesses (including monetary value transfer services);

• insurance companies, agencies, and brokers;

• securities and commodities brokers, dealers, advisors, investment managers; and

• other financial institutions not mentioned above.


The AML Guidelines define a financial institution as any person who conducts one or more financial activities or operations for or on behalf of a customer. The term business relationship is defined as any ongoing commercial or financial relationship established between financial institutions or designated non-financial businesses and professions (DNFBPs) and their customers in relation to activities or services provided by them.


What is contained in the AML Guidelines?


The AML Guidelines are organised into five parts, which consist of the following:


1. Part 1 – Overview: This includes background information of the UAE’s AML legislative and strategy framework including key provisions of the law and regulations affecting financial institutions;


2. Part 2 – Identification and assessment of money laundering and financing of terrorism risks;


3. Part 3 – Mitigation of money laundering and financing of terrorism risks;


4. Part 4 – AML and anti-terrorism financing (ATF) compliance administration and reporting requirements, including guidance on governance, suspicious transaction reporting and record keeping; and


5. Part 5 – Appendices including a glossary of terms and links to relevant portals.


The AML Guidelines have been prepared such that, where sufficiently clear guidance is provided in the AML Law and AML Regulations, no additional guidance is provided in the AML Guidelines. However, where the AML Law or AML Regulations do not specifically cover a topic but such topic is addressed implicitly or by reference to international practices, the AML Guidelines seek to provide guidance to bring some clarity to their intended application in the UAE.


How do the AML Guidelines interact with guidance from other supervisory authorities?


The AML Guidelines address some inconsistencies that may arise from the legal and regulatory framework currently in place, from previous laws or regulations, or from differences in regulatory requirements between the various supervisory authorities in the UAE. The AML Guidelines recommend, however, that for any unaddressed inconsistences between supervisory authorities, financial institutions should contact their relevant supervisory authority.


It appears that with the introduction of the AML Guidelines, other supervisory authorities may begin publishing guidelines of their own relating to AML and ATF compliance.


For example, on 30 June 2019, the Dubai Multi Commodities Centre (the DMCC) published its AML and ATF guidelines for financial institutions and DNFBPs. The DMCC’s guidelines are presented as the DMCC’s own interpretation of the AML Law and thus are not mandatory rules or regulations for entities operating in the DMCC. Rather, the DMCC makes it clear that it is the responsibility of all entities to review the AML Law and AML Regulations and determine the impact on their own business.


On 7 July 2019, the UAE Minister of Justice promulgated a number of resolutions introducing AML and ATF initiatives. The initiatives include:


• establishing a section for AML and ATF;

• issuing AML and ATF procedures for lawyers, notaries and independent legal professionals;

• establishing a Committee for managing frozen, seized and confiscated funds;

• issuing procedures dealing with situations where persons listed on the local terrorism lists use frozen funds;

• issuing guidance on the grievance mechanism for persons disputing listing on the local terrorism lists; and

• issuing procedures and conditions for requesting international judicial cooperation on the sharing of the proceeds of crime.




While not legally binding, the advent of AML and ATF guidance from the various supervisory authorities of the UAE is a welcome step for businesses in the UAE. It will allow entities subject to the AML Law and AML Regulations to understand how supervisory authorities may construe their obligations and to take the recommended practical steps to ensure they are in compliance with their obligations pursuant to the AML Law. ■