Regulation matters: it drives and shapes business strategy especially within the financial services industry. Regulations come from a number of different sources, at both a national and global level. But it’s the global ones we’ll focus on here, not least because these tend to strongly influence and shape those regulations that are then introduced at a local level.

Clearly one of the biggest influences on the global financial regulatory landscape was the financial crisis of 2007 to 2008. Many of the new regulations brought in over recent years are a direct response to the perceived deficiencies in the internal structures of financial institutions and markets, shaped by inadequate regulation, highlighted so brutally by the crash.


Much of this recent regulation has been brought together in what are known as the Basel Accords – a series of voluntary agreements that have put in place new frameworks within the global financial sector. The UAE is now very much a part of that global family, and so the latest incarnation of the agreement – Basel IV – which is due to come into effect soon, will have serious implications in the Emirates.

The Basel agreements set out guidelines for more stringent capital requirements and greater financial disclosure by financial services businesses. The Central Bank of the UAE (CBUAE) has already requested that banks meet minimum qualitative and quantitative liquidity requirements in the light of the latest iteration of the Accords. The response to this move has been generally swift in the Emirates, at least by the institutions that recognise the importance of the impending regulatory changes. But it still requires substantial investment by individual banks to make sure that they have a sound liquidity system with appropriate systems and controls in place to bring them into line with the new regulatory requirements. The willingness of individual financial services companies to make this investment now will shape their future ability to thrive in the new post-Basel IV regulatory environment.

IoM reforms

Over and above the Basel reforms, the UAE financial services market is also busy getting ready for impact of the new regulations being introduced in the Isle of Man next year, which will kick in from January 2019 in the UAE.

The rule changes will affect some of the largest life companies in the world (at least those ones headquartered on the island), and the effects will certainly be felt in the UAE financial services sector. The changes cover a pretty broad area, but all aim to provide more transparency for customers – including making sure that the products they are offered are actually suitable for their needs.

A big part of this will be around commission – from 2019 it will be up to advisors to justify to their customers the commission they’ll be getting on any products they recommend. There’s also going to be a lot more vetting in place to make sure firstly that they are solvent, that they meet stringent rules as practitioners and that they’ve got all of their paperwork sorted (including licences, authorisations and the registrations they need to operate in the Emirates).

Inevitably there will be consolidation in this sector as the small firms fail to meet the tougher standards.

It all means that financial services companies will start being a lot harder on the agents they have working for them in the UAE, to make sure that they’re sticking to the tighter rules.

It’s all positive, but as with all big regulatory changes, it’s going to require investment and commitment from the sector to make sure they get it right.


The third major piece of global regulation already having a direct impact on the financial services sector in the UAE is IFRS 9. This is an International Financial Reporting Standard (IFRS) that covers the classification and measurement of financial instruments, the impairment of financial assets and hedge accounting. How is this making a difference in the UAE?

Essentially, IFRS 9 has seen changes introduced to the way in which financial instruments are regulated, to address the deficiencies in them that the authorities believe made the financial crisis even worse than it should have been. Financial institutions in the UAE have been busy preparing for the changes, generally with a reasonable level of success.

“Categories for classification of financial instruments were reduced and the accounting of financial assets was aligned with how they were managed,” says Yusuf Hassan of KPMG. “We moved from an incurred loss approach to an expected loss approach, with bankers asked to provide 12 month expected credit losses on loans and investments from the day they were acquired.

“IFRS 9 is likely to impact the way banks price loans, sell investments, arrange loans and manage financial assets. Risk and accounting professionals have had to develop a new technical skill set – and retaining these professionals has been challenging.”

Clearly there have been teething problems in implementing IFRS 9, mostly around interpreting the new requirements, data and system issues, and in the amount of time required to make the changes. Generally speaking, financial services institutions in the UAE have put the resources in place to approach the transition in a methodical and structured way.

A reduced offering

Yet another factor affecting the UAE industry that investors need to take into account is the recent news that Aviva are selling Friends Provident International (FPI) to RL360° parent company International Financial Group Ltd (IFGL). The move means that Aviva have been able to ship a less profitable part of their business, but the knock-on effect for UAE investors is that product offerings for expats will be now be reduced to just a few key players – RL, Zurich, Old Mutual and, to a lesser extent, products from Generali and Hansard.


Once again, part of the value of the new global regulations is that they have forced financial services businesses in the UAE to take a long hard look at the way they operate – and to consider how well they are prepared for the ups and downs of future markets.

This new global regulatory environment has put a great deal of pressure on financial institutions in the UAE to make the investments they need now to create a strong framework on which to build future growth.

Here at Holborn Assets we’d suggest that the ones who have started this process early will be best placed to take advantage of whatever future markets – and regulators – might send their way.