Understanding the legal framework surrounding share ownership in banks within the United Arab Emirates (UAE) is essential for board members and shareholders alike. This article explores the implications of a proposed structure for a board member, seeking to hold shares in a UAE bank, along with potential disclosure obligations.
National Shareholding Regulations
The ownership structure of banks in the UAE is governed by Decretal Federal Law No. (14) of 2018, concerning the Central Bank and the regulation of financial institutions. According to Article 76(1), the Central Bank of the UAE (“CBUAE”) establishes that national shareholding in banks must constitute at least 60%. This national shareholding requirement aims to ensure local ownership and control within the banking sector.
Disclosure Obligations
The regulatory framework stipulates various thresholds that necessitate specific disclosures to the CBUAE and the Securities and Commodities Authority (SCA):
The Central Bank of UAE Requirements
1. 5% Ownership or More: Pre-approval Required
Under the Significant Shareholder Regulation (Circular No. 05/2020), any individual acquiring or divesting 5% or more of a bank’s share capital must seek prior approval from the CBUAE. In this case, the board member would be required to notify the CBUAE immediately upon proposing or acquiring such a stake.
2. Ownership Between 1% and 5%: Notification Obligation
If the ownership falls between 1% and 5%, the board member must promptly notify the CBUAE following the acquisition.
3. Less Than 1%: No Requirement
There are no obligations for ownership changes below 1%. However, banks may have internal governance policies that impose additional requirements on board members.
Fit and Proper Requirements for Board Members
It is important to note that under Circular No. 83/2019, issued by the CBUAE, board members, especially those who are significant shareholders, must pass the Fit and Proper Test. This test assesses the integrity, competence, and financial soundness of individuals holding key positions in banks. A chairman or board member holding a large number of shares may be subject to scrutiny to ensure their financial stake does not compromise governance.
Securities and Commodities Authority (SCA) Disclosures
The SCA mandates immediate notification if an individual’s or corporate entity’s ownership reaches certain thresholds:
5% or More: Immediate disclosure to the market is required if the board member or a related corporate entity acquires 5% or more of the bank's shares.
10% Thresholds: Similar disclosures apply for mother companies, subsidiaries, or affiliates.
1% Changes: Any future increase of 1% or more must also be reported.
The definition of "Associated Group" includes family members and corporate entities under specific control arrangements, emphasizing the need for transparency in ownership structures.
Insider Trading and Market Manipulation
Another legal consideration is the regulations regarding insider trading and market manipulation. Under Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and Market, board members, particularly those holding significant shareholdings, must ensure compliance with the laws prohibiting the use of non-public information for trading or any activity that could be construed as manipulation of the market.
Conclusion
It is critical for board members of UAE banks to be aware of the various obligations tied to ownership of shares in the bank. Navigating these regulatory waters is essential for maintaining compliance and ensuring transparent governance within the banking sector.
Elhassan Abdelrazek
Partner
NHB LEGAL