The Central Bank of UAE has issued UAE’s first comprehensive financial consumer protection regulatory framework on February 1, 2021. It forms the foundation for its Financial Consumer Protection Regulatory Framework (FCPRF). It defines the relationship between the financial and banking service providers and the consumers in order to ensure the protection of financial consumers and continued confidence in the sector.
As per the press release from CBUAE, the Regulation provides a broad spectrum of appropriate behavior and conduct expected of LFIs. The Principles cover areas as disclosure and transparency, institutional oversight, market conduct, business conduct, and protection of consumer data and privacy. Moreover, the principles set responsibilities for responsible financing practices, complaint management and dispute resolutions, consumer education and awareness and financial inclusion, and Shariah compliance for financial services. The regulatory principles are supported by detailed Standards, which will ensure LFIs’ consistent application of these Principles and act with integrity and fairness in the treatment of financial consumers.
In the release, His Excellency Abdulhamid M. SaeedAlahmadi, Governor of CBUAE stated that “The issuance of the Consumer Protection Regulation comes within the Central Bank’s keenness to promote transparency and fairness when Licensed Financial Institutions deal with their consumers. It will enhance competitiveness, integrity, and stability of the banking and financial sector.”
The new Regulation is supported by Decretal Federal Law No. 14 of 2018 Regarding the Central Bank and Organisation of Financial Institutions and Activities, which gave CBUAE an expanded mandate to establish regulations and detailed standards for the protection of customers of licensed financial institutions. The Principles-Based Regulation sets out key objectives to ensure the protection of consumers’ interest in their use of any financial product, service, and relationship with Licenced Financial Institutions (LFIs). As per definition under Decretal Federal Law No. 14 of 2018, Licensed Financial Institutions are Banks and Other Financial Institutions licensed in accordance with the provisions of this decretal law, to carry on a Licensed Financial Activity or more, including those which carry on the whole or a part of their business in compliance with the provisions of Islamic Shari`ah, and are either incorporated inside the State or in other jurisdictions or have branches, subsidiaries or Representative Offices inside the State. Hence, enforcement of new consumer regulations has a greater impact on the financial industry.
Financial consumer protection is an evolving field of jurisprudence for the past decade across the globe as the financial sector has been emerging with diverse products and services and there is a greater disconnect between financial service providers and its end customers. Lawmakers have warned about effects on financial consumers owing to grey areas and lacuna in traditional regulatory schemes or consumer protection law. Without an effective and efficient consumer protection framework, healthy development of the financial sector, financial inclusion, and broader economic growth will be deterred. It is seen from experience that an ideal financial consumer protection does not limit itself to a singular dispute resolution mechanism but equally mandates benchmark principles of consumer protection, monitoring its adherence, consumer education, and other proactive measures. Such a double thronged regulatory model has been found successful in many countries. The 2017 Good Practices for Financial Consumer Protection issued by World Bank is designed as both a comprehensive reference and an assessment tool for country-level policymakers and regulators. Many of the principles covered therein appear to be considered in the new UAE regulation.
According to the CBUAE website, the Consumer Protection Department works to protect consumers from financial misconduct through education, policy-making, and compliance monitoring and tracking of complaints resolution. It is further stated in the press release that the protective measures are designed to improve the quality of the information provided by financial institutions about products and services, provide a more effective and efficient way of settling disputes including a requirement for individual LFIs to put in place an independent and fair complaint resolution mechanism in order to receive and address consumer complaints. To address concerns of over-indebtedness LFIs are to incorporate principles for responsible financing by ensuring consumers’ financial situation are properly considered in determining an appropriate level of financing to be provided to the consumer.
In an ever-expanding robust financial market like UAE, this regulation will have a far-reaching effect especially considering the entities being covered under the Regulation. We can take a moment to applaud the initiative of the Regulator which will most certainly aid in boosting market trust and encourages greater financial expansion.
