Resolution No. 58/3/96 of the Board of Directors of the Central Bank concerning the regulation of finance companies (Resolution 58) was promulgated under the authority set forth in Articles 114 to 119 of the Central Bank Law, which pertain to Financial Corporations (mu'assasat maliyyah). Article 114 of the Central Bank Law defines Financial Corporations as those institutions whose principal functions are to extend credit, to carry out financial transactions, to take part in the financing of existing or planned projects, to invest in movable property and such other functions as may be specified by the Central Bank. Financial Corporations may not accept funds in the form of deposits but may borrow from their head offices, from local and foreign banks, or from financial markets.
Resolution 58 is the first detailed set of Central Bank regulations on Financial Corporations. It defines a Finance Company, in terms similar to the definition of a Financial Corporation, as a juristic person that conducts one or more principal financial businesses. It provides that a Finance Company may grant personal advances or loans to its customers for various personal and consumer purposes, provide financing for businesses and projects, including opening credits and issuing guarantees on behalf of its customers, and participate with up to 7% of its capital in projects, securities offerings and certificates of deposit. Any activities in addition to the foregoing are not permissible unless approved by the Central Bank's Board of Directors. Finance Companies may not accept deposits or loans from individuals or open accounts of any kind for individuals. Deposits and loans that a Finance Company receives from its customers shall not be subject to any compulsory cash margins.
Resolution 58 requires that Finance Companies wishing to operate in the UAE be licensed by the Central Bank. To obtain a licence, the paid capital of the applicant Finance Company must be not less than Dh35 million (US$9.5 million), its UAE national shareholding must be at least 60% of the total paid capital, and a majority of the board of directors must be UAE nationals. The incorporators of the Finance Company must have the required personal and professional qualifications. The Central Bank has the right to cancel, restrict or amend any licence which it grants.
The following application materials must be submitted to the Central Bank:
- A statement of the nature and scope of the proposed finance activities, along with any plans for the future development of such activities and details of the arrangements concerning management of such activities.
- The names of the incorporators along with their addresses, nationalities and shareholdings in the Finance Company, and an authenticated copy of its memorandum and articles of association, following completion of the procedures for incorporation under the Commercial Companies Law, attaching photocopies of the passports of the non-national shareholders and the identification papers of the national shareholders.
- Information regarding the management structure of the Finance Company and CVs of the proposed key personnel.
- A certificate from a bank operating in the UAE that Dh15 million has been deposited of the capital authorized by the memorandum and/or articles of association of the company, along with an undertaking to deposit the remainder immediately on receipt of initial approval from the Central Bank.
- An undertaking that the applicant will comply with the Central Bank Law, the Commercial Companies Law, Resolution 58, and any regulations issued by the Central Bank from the time to time, and that it will permit the Central Bank to inspect its records and documents.
A number of continuing obligations apply to Finance Companies. A Finance Company may not engage in currency exchange or financial investment activities or any other activities not licensed to it or that fall within the activities of another financial institution. In addition, a Finance Company shall not:
- lend to, deposit with or invest in a single party or group more than 7% of its paid capital and reserves;
- make loans or financial advances to members of its board of directors or companies owned by them; or
- own real estate in the UAE without the consent of the Central Bank.
A Finance Company shall also abide by the following:
- Its capital adequacy must not be less than 15%.
- It must be managed by persons who have been approved by the Central Bank.
- It must not change its corporate form, ownership or capital without the prior written approval of the Central Bank.
- It must not merge or consolidate with any juristic person or other entity without the prior written approval of the Central Bank.
- It must conduct its business in appropriate independent premises approved by the Central Bank and must refrain from any other activity of any kind from the same premises alongside its licensed business. The premises may not be relocated without the approval of the Central Bank.
- Its commercial name must not contain the words 'bank', 'investment company', 'commercial company' or 'real estate company' or any indication of business other than finance.
- It must not open branches without the prior written approval of the Central Bank, and permission to open a new branch will not be granted unless the company's financial position is sound and there are no violations against it.
- It must appoint auditors acceptable to the Central Bank and keep financial records and submit copies thereof to the Central Bank in the form demanded.
- It must transact with all its customers by means of official documentation.
- It must issue all correspondence and documents in its name and signed by a duly authorized signatory.
- It must not create a charge over any of its assets without the prior written approval of the Central Bank.
- No shareholder may withdraw funds in excess of its share of the annual net profits of the company as determined in accordance with the Commercial Company Law.
- Its shareholders, managers and auditors may not receive loans from the Finance Company or have a current or any other account with the Finance Company.
- It must provide the Central Bank with copies of its annual audited financial accounts within three months of the end of its financial year. The financial year must coincide with the calendar year.
- It must provide the Central Bank with any data, information or statistics which it requests from time to time. Such particulars must be in compliance with the company's records, and will be deemed confidential at all times.
- It must obtain a licence from the appropriate local authorities and commence its operations within one year from the date of promulgation of the Central Bank licence.
- To renew its licence, the Finance Company must submit an application to the Central Bank two months before expiry.
- It must abide by the laws in force in the UAE and the regulations issued by the Central Bank.
Finance Companies already licensed in the UAE must comply with Resolution 58 within one year, except that compliance with the requirement on percentage capital ownership is waived for such companies.
In addition, Resolution 58 provides that, on approval by the Central Bank, a foreign Finance Company may set up a branch or representative office in the UAE.
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