Central Bank’s New Regulations For Governing Acquisitions in the UAE

Posted by Awatif Mohammad Shoqi Advocates & Legal Consultancy on May 12th, 2022

Acquisitions of gigantic groups of companies in UAE are receiving a lot of attention lately, wherein banks plays a significant role in assisting the companies undergoing acquisition. Therefore, in order to securely regulate the tasks performed by the banks in big acquisitions, the Central Bank of UAE has issued a new circular that Circular number 2 of the year 2020 for implementing the major Acquisition Regulations. The motivation behind the Regulations is to manage and oversee significant acquisitions being attempted by banks in the UAE with the end goal of guaranteeing the sufficiency of UAE banks and adding to money related security and protection to the commercial market. Banking Lawyers of Dubai confirms that even though UAE government has issued Banking Law (Federal Law 14 of 2018), yet the new regulation intends to impose further regulations on the banks to comply with the procedures and steps whilst undergoing acquisition of major companies in the country. 

The Regulations are, in this manner, quite appropriately issued on time, without any delay. The Regulations apply to all banks authorized to undertake financial activities authorized by the Central Bank in the UAE, including auxiliaries, members and universal branches. Some of the key highlights of the concerned regulation includes the following: 

• Banks must not secure any organization, or move any of their liabilities to someone else without first getting Central Bank’s confirmation;
• Banks must acquire written confirmation from the Central Bank before finishing a ‘Significant Acquisition’. A ‘Significant Acquisition’ is an obtaining or venture by a bank where the total sum being gained crosses 5% of the bank’s absolute administrative capital (determined by reference to that bank’s particular capital ampleness necessities), or which is in any case regarded to be a ‘Significant Acquisition’ by the Central Bank. 
• In furtherance, the banks shall (prior to seeking Central Bank’s approval) shall provide some information regarding the acquisition to the central bank along with relevant documentation and the subjected impact it may have on the bank or the commercial market. 
• A bank’s directorate must execute strategies and methods to empower recognizable proof and prevention of dangers related with Major Acquisitions. 
• Banks must not hold offers (and convertible debts) in organizations past a restriction of 10% of their all-out administrative capital (this won’t matter to a securing of an auxiliary or associate, however such procurement will even now be dependent upon Central Bank endorsement). 
• Significant Acquisitions being embraced by UAE banks outside of the UAE will be liable to due diligence and additional consideration. 

In spite of the fact that banks will as of now be aware of their commitments under the Banking Law while thinking about mergers and acquisitions, the said regulation will force an improved degree of prerequisites which ought to be considered in the beginning times of the examination of an acquisition. Nevertheless, commercial lawyers of Dubai believe that whilst the implementation of the concerned regulation, it may be difficult to ascertain what all acquisitions will be considered as “Significant Acquisitions”. The necessity to give documents of due diligence to the Central Bank will probably bring up issues around the Central Bank’s dependence on those reports, and arrangement counsels to banks undertaking exchanges in the UAE ought to likewise be insightful of how that data could be utilized by the Central Bank in its dynamic procedure.