Tag: Banking and Finance

New UAE pledge law over movable assets

Overview

 

The new Pledge Law of the UAE was enacted on 12 December 2016 as Federal Law No. 20 of 2016. The Pledge Law was published in the Federal Official Gazette on 15 December 2016 and will become effective on 15 March 2017. The Pledge Law introduces a new regime for registering a pledge over movable assets which are pledged as security for the repayment of a debt. Whilst the Pledge Law provides some helpful guidance on the type of movable asset pledges that can be registered and the effects of registration, the key administrative details regarding the administration of the pledge register, including the entity that will establish and operate the register, the format of the pledge contract that will be registered and the registration procedure and fees will be outlined in the Executive Resolutions to the Pledge Law; which will be issued by the UAE Cabinet within 6 months of the effective date of the Pledge Law (the “Executive Regulations”). The most significant development under the Pledge Law is that it is no longer necessary for a lender to take possession of movable assets in order to perfect a pledge over the same. This means that a lender is no longer required to appoint an employee/representative of the pledger, as its agent, in order to take possession of any pledged movable assets.

 

Certain Key Features

 

  • In comparison to the previously unregistered pledges, which simply created a contractual right that needed to be enforced by the UAE civil courts, the Pledge Law allows a pledgor to perfect its legal rights over the movable assets through registration.

 

  • Once registered, the pledge gives the pledgor priority over third parties and the registration is deemed notice to third parties.

 

  • A broad category of pledge assets that can be registered, including bank accounts, tangible and intangible assets, fungible assets, raw material and future assets.

 

  • It is not possible to register a pledge over certain types of movable assets including (i) assets relating to home or personal use, (ii) receivables under an insurance policy, (iii) public, foreign consulates or endowment properties, (iv) rights resulting from future inheritance, and (v) assets which require possession or specific registration, in order to perfect a pledge over the same.

 

  • The public will have access to information regarding a registered pledge. However, details regarding the information that will be made available to the public and the procedure for requesting the same will be outlined in the Executive Resolutions.

 

  • A lender may secure a pledge over tangible and intangible assets of a commercial business, as security for any acquisition funding provided to acquire such commercial business. Such pledge will have priority over the rights of any purchaser, lessee or lien holder, provided that the pledge is registered before the creation of any other rights on the relevant assets. It is not clear to what extent this would replace the current use of commercial mortgages, which also secures an interest over tangible and intangible assets.

 

  • If the pledgor or obligor (as applicable) fails to perform its obligations under the pledge contract the pledgee may seek to sell the pledged asset, pursuant to the mutual agreement of the parties or through a summary judgement from the UAE courts.

 

Application of the Pledge Law

 

The Pledge Law applies to all civil and commercial transactions that create a right of pledge over movable assets in accordance with the provisions of the Pledge Law. The Pledge Law includes a broad category of pledge assets that can be registered, including bank accounts, commercial paper, tangible and intangible assets (previously intangible assets could only be pledged under a commercial mortgage for LLCs and would require a UAE licensed bank to act as the mortgagee), raw material and fungible assets and future assets (which was not previously possible as this would create a floating charge, which was not recognised under UAE law).

 

However, the Pledge Law does not apply to movable assets that can only be pledged by possession or where UAE laws require an interest over such assets to be registered under a specific register (e.g. vessels, cars, planes and shares of an LLC). Furthermore, it is not possible to register a pledge over certain categories of assets including (i) assets relating to home or personal use, unless they have been pledged as security for financing the purchase of the same, (ii) proceeds under an insurance policy, unless such proceeds relate to a pledged asset (iii) public, foreign consulates or endowment properties, (iv) rights resulting from future inheritance and (v) assets which require possession or specific registration, in order to perfect a pledge over the same.

 

How to Create a Right of Pledge

 

In order to register a pledge, the parties must (i) conclude a pledge contract, including details of the pledged asset, declaration from the pledgor confirming his right to pledge the pledged asset and the nature of the secured debt and (ii) notify the holder of the pledged asset (if not held by the pledgor). The pledge shall be registered by filing the necessary registration form with the registrar. All persons that should be notified of the pledge registration under the provisions of the Pledge Law (e.g. third party holders of the pledged asset), must be notified of the pledge registration at the time of the application. The pledge registrar and registration fees / charges (which will be paid by the pledgor, unless agreed otherwise by the parties) will be specified in the Executive Resolutions.

 

Once the pledge is registered the legal rights of the pledgee shall be effective against third parties. The pledgee shall be entitled to track and inspect the pledged asset (even if it is held by a third party), have priority over any income generated from the pledged asset and benefit from other priorities that are specific to certain types of pledged assets. For example, any registered pledge over a movable asset that is attached to real property shall have priority over any pledges relating to the real property, provided that the pledged movable asset can be removed without damaging the real property. The pledge rights over the movable asset attached to real property must also be registered in the relevant real estate register.

 

Enforcement

 

If the pledgor fails to perform its obligations under the pledge contract then the pledgee may (following prior written notice to the pledgor or obligor (as applicable)) request the sale of the pledged asset at market value within 10 working days, provided that certain conditions are met including (i) the parties agreeing to proceed with the sale without resorting to the courts, (ii) there are no outstanding third party rights over the pledged asset, (iii) notice of the enforcement to the person holding the pledge asset and owner of the real property (in the event that the pledged asset is connected to real property). In the case of pledged accounts the sums in the pledge account may be set-off by the account bank against sums owed to the pledgee (in the case that the pledgee is also the account bank) or the amount in the pledged account can be claimed from the account bank.

 

Alternatively, the pledgee may apply to the UAE courts for a summary judgement to exercise his rights over the pledged asset. This may involve placing the pledged asset into the hands of a third party in order to affect the sale of the pledged asset. The summary proceedings judge shall notify all relevant parties of the application, who may lodge an objection to the court. If the court permits the summary judgement application it shall permit the pledgee to either (i) take possession of the pledged asset and sell the same at market value or (ii) attach additional conditions for the sale of the pledged asset. The pledgee must register the decision of the court in the pledge register before selling the pledged asset. The pledgee must deposit the sale proceeds, from the sale of the pledged asset, into the treasury of the court, in accordance with the sale procedure set out under the Executive Resolutions.

 

The sale proceeds shall be distributed in accordance with the directions of the court, taking into account the rights of any other parties over the pledged asset. However, generally the sale proceeds shall be distributed in the following order of priority:

 

(a) any expenses relating to repairing, the sale, licensing or maintenance of the pledged asset;

 

(b) charges and fees relating to the enforcement of the pledge, including judicial fees;

 

(c) to the pledgees, in accordance with the priority determined by the court; and

 

(d) any surplus to be distributed in accordance with the laws of the relevant emirate.

 

Any remainder of the purchase price shall be distributed to the pledgor. If the sale proceeds are insufficient to discharge the debt secured by the pledge, the pledgor shall remain liable for the remaining unpaid debt. Enforcement and sale of the pledged asset will not be possible if the pledgor is subject to any preventative composition, bankruptcy or equivalent procedures under the Federal Decree Law No. 9 of 2016.

 

Termination of Pledge

 

A registered pledge may be terminated if (i) the pledgee and pledgor or obligor (as applicable) agree to strike-off the registration, (ii) the obligor discharges the obligations that are secured by the registered pledge, (iii) the registration relates to assets that cannot be pledged under the Pledge Law, (iv) the pledgee fails to discharge its obligations following the registration of the pledge contract, or (v) a court order is issued to strike-off the pledge registration.

 

Conclusion 

 

Whilst the Pledge Law provides a valuable opportunity for lenders to perfect their rights through registration, the popularity of the new regime will depend largely on the administrative registration mechanisms that will be outlined in the Executive Resolutions. Nonetheless, the concept of the pledges register is another step (along with the introduction of the share pledge register under the new UAE Companies Law) towards providing greater certainty and protection for lenders. ■

The new UAE Bankruptcy Law

Overview

 

The new Bankruptcy Law of the UAE was enacted on September 20, 2016 as Decree-Law No. 9 of 2016. It was published in the Federal Official Gazette on September 29, 2016, giving it an effective date of December 31, 2016. The new Bankruptcy Law replaces and repeals the previous legislation on the subject, Book 5 of the Commercial Code, which was seldom used in light of its perceived shortcomings. Perhaps the most important new feature of the new Law is the introduction of a regime that allows for protection and reorganization of distressed businesses.

 

Certain key features

 

 

  • The current law relating to insolvency has been repealed.

 

 

  • Coverage is different; many entities covered by the previous law are not covered by the new Law, while the new Law covers many entities that were not covered before.

 

 

  • The Financial Restructuring Committee has been established.

 

 

  • A debtor can seek court protection and assistance while it agrees to a financial arrangement with its creditors without having to proceed to bankruptcy proceedings (“preventive composition”).

 

 

  • A creditor (or group of creditors) must now have a debt owed of at least AED 100,000 before it can initiate bankruptcy proceedings.

 

 

  • The Penal Code provisions on non-fraudulent bankruptcy have been repealed.

 

 

  • Criminal proceedings relating to “bounced” cheques will be suspended for the duration of the preventive composition or restructuring procedures.

 

 

  • A debtor can raise new finance during the preventive composition or restructuring process, with court approval.

 

 

Who does the New Bankruptcy Law apply to?

 

 

Article 2 of the new Bankruptcy Law provides that it shall apply to:

 

 

  • Private sector companies:

 

  • All companies governed by Federal Law No. 2 of 2015 on Commercial Companies (the “Companies Law”);

 

    • Businesses established in the Free Zones, except for the Financial Free Zones (the Dubai International Financial Centre and the Abu Dhabi Global Market), which have their own rules on bankruptcy; and
    • Licensed civil companies conducting professional activities.

 

  •  Public sector companies:

 

  • Companies wholly or partially owned by the federal government or an Emirate government whose founding statutes or constitutive and governing documents provide that they shall be subject to this Law.

 

  • Individuals:

 

  • Traders.

These are significant changes. Civil companies were generally viewed as falling outside the previous law, since they engaged in “civil” as opposed to “commercial” activities. But in contrast, the public sector is now almost completely exempt from the new Bankruptcy Law, unless and until a public sector company undertakes the amendment of its founding statute or constitutive and governing documents so as to make it subject to the new Bankruptcy Law. Coverage did not change as regards sole to proprietorships; traders who were engaged in business as sole proprietorships were subject to the previous law (although this was not generally appreciated) and are subject to the new Bankruptcy Law.

 

Some Key Features of the New Bankruptcy Law

 

The Financial Restructuring Committee

 

Article 4 provides that the Financial Restructuring Committee will be responsible for:

 

  • the supervision of financial restructuring procedures of financial institutions so that the debtor’s arrangements with its creditors can be appropriately agreed and managed;

 

  • the accreditation of experts involved in financial restructuring and bankruptcy dealings and establishment of fees and costs payable for their services;

 

  • the establishment and maintenance of a register for persons against whom judgments under this Law are made;

 

  • reporting to the Minister of Finance on the work carried out by the Committee, results achieved and any actions it proposes; and

 

  • any other tasks prescribed under this Law or by the UAE Cabinet.

Debtor-creditor agreement – preventive composition

 

Rather than having to proceed directly (or at all) to bankruptcy proceedings, preventive composition will afford the debtor the opportunity to reach an agreement with its creditors for the repayment of sums owed (Article 5), while under court protection from individual creditor claims. This option will be available to the debtor only if it has not been in default for more than 30 consecutive business days and is not insolvent (Article 6(2)). The debtor will not be able to dispose of any property, stocks or shares, make any borrowings, or (if a company) change ownership or corporate form (Article 31(1)) whilst it is undergoing this process.

 

Application

 

The application must include, among other things, a description of the debtor’s economic and financial position; details of its movable and immovable properties, employees and creditors; and cash flow and profit and loss projections for the 12 months following the date of application (Article 9).

 

Debtor obligations

 

The debtor must continue to perform its obligations under any contract, provided the Court has not issued a judgment of stay of execution due to the debtor’s failure to perform its obligations (Article 34(1)). The trustee designated to facilitate the preventive composition process does have the right to request the Court to rescind any contract if that is in the best interests of the debtor and its creditors and provided that it does not substantially harm the other contracting party’s interests (Article 34(2)).

 

Appointment and obligations of the trustee

 

The Court will appoint one to three trustees as designated by the debtor or appoint an expert or other person (if more appropriate) (Article 17(1) and (2)).

 

The trustee will be obliged to publish in two daily local newspapers (i) a summary of the decision approving the preventive composition, with a request that all creditors file appropriate claims (Article 35(1)), (ii) a list of the debts and statement of accounts accepted from each of those debts (Article 37(2)), (iii) the invitation to creditors to discuss and vote on the draft preventive composition arrangement (“Arrangement”) (Article 42(3)) and (iv) once approved by the Court, the decision and summary of the Arrangement (Article 54). Ultimately, the Court will approve the final list of approved creditors, having reviewed any objections received following the publication of the debts (Article 38(1) and (8)).

 

The trustee will submit the draft Arrangement to the Court, who will then have five business days to make its decision to approve or reject it (taking account of any creditor objections) (Article 49(1) and (2)).

 

Thereafter, the trustee is responsible for supervision of the Arrangement throughout the implementation period (as described below), including submission of quarterly reports to the Court detailing progress and/or any failures by the debtor to implement the Arrangement (Article 55(1) and (2)). The trustee can apply to the Court for any amendments to be made to the Arrangement if it considers it necessary at any point during the implementation period (Article 55(3)).

 

Implementation

 

The preventive composition arrangement must be implemented within three years of the date of Court approval (Article 41). This term can be extended for a further three year period if a two thirds majority of the unpaid creditors consent to the extension (Article 41).

 

Discharge of the Arrangement

 

Following a request by the trustee, and pending discharge of the debtor’s obligations under the Arrangement, the Court will issue its decision confirming that the Arrangement has been entirely fulfilled. Such decision will be published in two daily newspapers, although the Law is silent as to which party is responsible for such publication (Article 56).

 

Conversion from preventive composition into bankruptcy procedures

 

At the request of an interested party, or in exercise of its own discretion, the Court may, under Article 65, initiate the termination of the Arrangement and convert it into a bankruptcy proceeding if:

 

  1. it is proved that the debtor was in payment default for more than 30 consecutive business days or was insolvent on the date of commencement of the preventive composition proceedings, or if this became clear to the Court during the course of the preventive composition proceedings; or

 

  1. it becomes impossible to apply the Arrangement, and ending the same would result in payment default for more than 30 consecutive business days or result in the debtor’s insolvency. (There is no guidance as to what would constitute “impossible”).

 

Creditor-initiated bankruptcy

 

Under the old regime, a creditor could initiate bankruptcy proceedings against a debtor for any amount owing (provided such creditor could provide evidence that the debtor had ceased to make payments when they fell due). Now, there is a minimum threshold of AED 100,000 before a creditor (or group of creditors) can initiate bankruptcy proceedings against the debtor, provided that such creditor has adequately notified the debtor of such debt and the debtor has still failed to repay it within 30 consecutive business days of notification (Article 69(1)).  How disputed amounts will be treated by the court is not addressed.

 

This more debtor-friendly position can be contrasted with other jurisdictions. For example, the Insolvency Act 1986 (which applies in England, Wales and Scotland) provides for a minimum debt exceeding just £750 (approximately AED 3,400) before  a creditor is able to raise insolvency proceedings against a company debtor and apply to the Court to have the company wound up.

 

Removal of criminal offence

 

Under previous law, the UAE Penal Code treated bankruptcy as a potentially criminal act, even if not accomplished by fraud. The new Law abolishes the criminal provisions relating to non-fraudulent bankruptcy, eliminating the perceived stigma under the prior law. Despite this, it is important to note that the new Law in many circumstances still provides for criminal liability of entities and persons involved in a case of bankruptcy, and the existence of these provisions may continue to give owners, directors and management significant cause for concern.

 

Suspension of criminal proceedings relating to “bounced” cheques

 

Provided the debtor has given a cheque as payment before an application for a preventive composition or restructuring arrangement has occurred, any resultant criminal proceedings will be suspended pending the outcome of those arrangements and the recipient of such a cheque will be considered to be a creditor under the relevant arrangement (Article 212(1) and (2)).

 

Ability to raise new finance

 

While undergoing the preventive composition or restructuring process, a debtor (or the trustee) has the option to apply to the Court for authority to obtain new funding (Article 181). Any “new” creditor will have precedence over any ordinary outstanding debt owed by the debtor (but providing protections for existing creditors) (Article 181(1)).

 

Conclusion

 

While the new Bankruptcy Law favours debtors by giving them greater flexibility and protections in the event of insolvency, it will be interesting to see how the Law is implemented in practice and whether debtors make use of its provisions. Nevertheless, the introduction of an insolvency regime which offers protection and encourages restructuring to enable troubled businesses to survive what would otherwise have been a bankruptcy situation is welcome, and is a milestone development in the UAE’s business law landscape. ■

Proposed insurance authority decision concerning marketing of insurance policies by banks

Recently, the Emirates Insurance Authority (the “Insurance Authority”) proposed a regulation in draft form concerning marketing of insurance policies by banks (the “Draft Regulation”). It is intended to regulate local insurance companies that market insurance policies through banks in the UAE. Once this Draft Regulation comes into force, banks will, in addition to the approval of the UAE Central Bank, require the approval of the Insurance Authority to market insurance policies.

 

Scope of the Draft Regulation

 

The Draft Regulation applies to insurance companies and banks that operate in the United Arab Emirates. It does not apply to insurance companies and banks in free zones.

 

Approval of the Insurance Authority

 

To obtain approval from the Insurance Authority to market insurance policies through a bank (the “Approval”), an insurance company must submit an application to the Insurance Authority. Within twenty (20) working days, the Insurance Authority will either approve or reject the application. An Approval shall be valid through December 31 of each year and must be renewed annually.

 

To cancel an Approval, an insurance company must terminate the agreement between the bank and the insurance company and notify the Insurance Authority of such termination. The Insurance Authority will then cancel the Approval. The Draft Regulation also permits an insurance company to temporarily suspend the Approval, thereby temporarily stopping the bank from marketing insurance products.

 

Restrictions under the Draft Regulation

 

The Draft Regulation imposes certain restrictions on banks and insurance companies:

 

  • A bank cannot act as an insurance agent, broker, consultant or other insurance-related professional of an insurance company.

 

  • A bank can only market certain types of insurance products.

 

  • A bank must have a designated officer to market insurance policies who (i) must receive ongoing training in marketing insurance policies; and (ii) must have successfully attended three training courses on insurance.

 

  • An insurance company must have a branch in the emirate in which the bank is marketing insurance products.

 

  • A bank can only market insurance products to its customers (defined as those that have accounts with or credit cards issued by the bank).

 

  • The agreement between the bank and the insurance company must state the rights and obligations of both parties, the bank’s commission, the types and classes of insurance products that will be marketed, rules to protect consumers’ rights in the event the agreement is terminated, a mechanism for training designated officer(s), and a requirement to comply with laws on anti-money laundering.

 

  • An insurance company must notify the Insurance Authority of any changes or amendments to the agreement and of any violations of the law by the bank.

 

  • Banks must maintain all documents and information related to marketing insurance products for a period of five (5) years.

 

Bank’s Obligation Towards its Customers

 

The Draft Regulation sets out rules on how the bank should market insurance products to its customers. The bank must ensure that customers are aware of the terms of, and the risks under, an insurance policy.

 

A bank must not condition the provision of banking services to the purchase of insurance and must disclose the fact that it will earn a commission on the sale of insurance.

 

Non-Compliance and Penalties

 

To enforce the draft Regulation, the Insurance Authority can:

 

  • issue a warning to an insurance company to stop violations;

 

  • suspend the Approval; or

 

  • cancel the Approval.

 

Banks that Currently Market Insurance Policies

 

Banks that currently market insurance policies must ensure that the relevant insurance companies obtain Approval from the Insurance Authority within a period of six (6) months from the effective date of the Regulation. ■

DFSA imposes record fine on Deutsche Bank

At the end of March 2015 the Dubai Financial Services Authority (the “DFSA”) imposed its largest fine to date on Deutsche Bank AG Dubai (DIFC Branch) (“Deutsche Bank”). The size of the fine, US$10.5 million, is perhaps modest when compared to the recent GBP 126 million (US$189 million) fine handed to Bank of New York Mellon by the UK regulator, but it is significant in the context of the DIFC, particularly when you appreciate that Deutsche Bank is one of the larger and more important financial institutions in the Centre. The fine sends a clear signal that the DFSA is both independent, and unafraid of taking on sophisticated and well-resourced opponents.

 

The fine is also a reminder that a cover up can often be worse than the initial crime. Sources close to the DFSA have confirmed that the regulator is unlikely to have taken any formal action against Deutsche Bank if the bank had disclosed its initial breach in a timely manner. As is made very clear in the Decision Notice published on the DFSA website, the bulk of the fine is based upon the fact that Deutsche Bank not only failed to cooperate with the DFSA investigation, but also actively mislead the DFSA and provided false information to the regulator.

 

During a three-year period beginning in January 2011, Deutsche Bank operated in a manner that was contrary to certain provisions of the DFSA Rulebook. The bank’s private wealth management team in the DIFC was providing some advisory services to high-net-worth individuals without documenting these individuals as clients of the DIFC branch. In summary, Deutsche Bank is authorized by the DFSA to provide the financial services of, amongst others, arranging and advising. This was the case during the relevant period, and continues to date. Also, there is no suggestion that the advisory services provided were anything other than competent and professional. The investigation found that there was no evidence of financial detriment to the bank’s clients. Furthermore, this does not seem to be a case of rogue individuals inside the bank improperly chasing bonuses or commissions.

 

The only thing Deutsche Bank did wrong (at least initially) was to fail to document high-net-worth individuals as clients of the DIFC branch. The business model that the bank was meant to be following was for the individuals to be referred by the DIFC branch to other parts of the Deutsche Bank group (including but not limited to branches in Geneva and Luxembourg). This was being done (and the clients properly documented in those booking centres) but the DIFC private wealth management team continued to be in touch with the clients, and therefore provided the previously mentioned advisory services. If they had simply issued a DIFC client agreement, and complied with the standard DIFC KYC and AML procedures, all would have been well. Unfortunately, this did not happen, and the DFSA became aware that Deutsche Bank might have been uncompliant in these areas.

 

It was at this point that the senior management within Deutsche Bank made some startling errors of judgment. Amongst other things, false and misleading emails and letters were sent to the DFSA by the bank’s compliance team. Internal reports about possible breaches of the DFSA Rulebook were suppressed. Bank employees were encouraged to amend internal reports to remove references to regulatory breaches. The bank then refused to comply with a DFSA notice requiring the production of various documents. This then compelled the DFSA to seek a DIFC court order to enforce the notice.

 

The DFSA’s investigation into the breaches at Deutsche Bank took two-and-a-half years to resolve. The final six months were apparently spent negotiating the wording of the published Decision Notice. The bank obtained a 20 percent discount on the total amount of the fine by agreeing not to appeal or otherwise contest the fine. Unlike many of the other notices or undertakings published by the regulator in other matters, no specific names are mentioned in the Deutsche Bank notice. The blushes of the relevant people at Deutsche Bank have therefore been spared. Nonetheless, this must have been an embarrassing episode for the bank, and something of a success for the DFSA. ■

The UAE Direct Debit system

Background

 

The implementation of a system for effecting payments by direct debit in the UAE is the latest effort by the UAE Central Bank to modernize and streamline the system for individuals and companies to meet their financial obligations. It is widely anticipated that the UAE Direct Debit System (DDS) will lead to a more efficient and secure system for payments.

 

The UAE Central Bank has published an extensive set of rules to assist financial institutions, corporates and individuals in understanding how the DDS can help them with their day-to-day operations and what they must do to ensure that they are compliant with the applicable rules.

 

The implementation of the DDS will change the landscape for electronic payments in the UAE. It offers corporates and individuals the ability to make automated recurring payments electronically which will have consequences for the manner in which financial institutions offer their products and collect payments from customers. It is important to understand the full impact of these changes before they come into effect.

 

Set out below are some of the key features of the new system as well as an overview of the three main parties who will be involved in the DDS.

 

Parties Involved in the DDS

 

In addition to the customer or payer who will use the DDS to pay recurring bills/payments, three parties will be involved in completing the cycle of payment.

 

  1. The Originator – A financial institution or corporate entity (referred to under the DDS as the “Originator”) may use the DDS to collect payments from its customers by direct debit. An Originator must also meet specific regulatory thresholds set by the UAE Central Bank and is required to provide a broad indemnity to other users of the DDS.

 

  1. The Sponsoring Bank – Each Originator is required to appoint a sponsor (referred to under the DDS as the “Sponsoring Bank”) in order to use the DDS. The Sponsoring Bank will provide the Originator with access to the DDS and will assist in the processing of direct debit payments. The Sponsoring Bank shall, in summary, act as a conduit for payment requests from Originators and payments flowing from customers of the Originator (or Payers as referred to under the DDS) to the Originator. The Sponsoring Bank shall be responsible for collecting payments due to the Originator. The Originator remains, subject to some limitations, at liberty to appoint more than one Sponsoring Bank. The Sponsoring Bank may also be an Originator.

 

  1. The Paying Bank – Each Payer who wishes to make payment to an Originator will require a bank account with a so called “Paying Bank” that is registered with the DDS. The Paying Bank shall be responsible for effecting the required payment from the Payer’s account to the relevant Originator’s Sponsoring Bank.

 

Dispute Resolution

 

It is noteworthy to mention that that the DDS will provide a dedicated mechanism for dispute resolution. This process involves communication between the parties involved and allows for final approach to the UAE courts if a resolution is not achieved.

 

Implications of the DDS on your business

 

Since all commercial banks in the UAE are obliged to undertake the roles of a Sponsoring Bank and a Paying Bank in the DDS, the DDS has the potential to change the way in which financial institutions in the UAE operate their businesses and will consequently impact a broad spectrum of businesses and individuals. It is also mandatory for all financial institutions in the UAE providing credit facilities (such as personal loans, car loans and mortgages) to act as an Originator.

 

In Conclusion

 

Afridi & Angell has developed specialist knowledge of the rules that apply in relation to entities participating in the DDS and is able to offer market leading advice and assistance in the preparation of the required documents in order to enable participation in the DDS. ■

 

For advice in connection with the DDS, its implementation and the consequences it may have for your business and operations, please contact Amjad Ali Khan or Danielle Lobo, or get in touch with your usual contact at Afridi & Angell for further assistance.