Thursday 18, May 2017 by Georgina Enzer

UAE Central Bank block is good for the insurance/banking industry

The UAE Central Bank has released a circular banning the sale of any new savings/investment or insurance/Takaful products until new legislation designed to improve the transparency of these products is put in place.

According to Peter Hodgins, Partner, Clyde & Co LLP Dubai, the Central Bank Circular is clearly driven by the regulator's desire to ensure that consumers in the UAE are adequately protected, a positive step for the industry as a whole.

“Clearly the Central Bank has been concerned by the volume of complaints received from consumers of long-term lifer insurance products. Regrettably, the details of these complaints have not be disclosed and it remains to be seen whether these are focused on the nature of the products or, as I suspect, the advice received by the consumer,” Hodgins told CPI Financial.

According to Hodgins, the Central Bank's notice, which was issued on 11 May 2017, needs to be understood in the context of the broader actions being taken by the other regulators in the UAE. In this regard, the Insurance Authority recently issued draft regulations for the life insurance sector. These regulations address many of the concerns expressed by the Central Bank in its notice.

“In particular they address the level of commissions payable to intermediaries [including banks], the disclosures to consumers and investment return illustrations and the qualification requirements for advisors. In parallel, the Emirates Securities & Commodities Authority issued last year, revised fund regulations to control the particular funds available for sale in the UAE,” he said. “My concern is the extent to which the various regulators are speaking to each other and the extent to which their requirements are harmonised. There is a real risk to the industry if they are required to comply with different requirements from multiple regulators. My primary concern with the Central Bank notice is that it is somewhat ambiguous. I interpret it as a prohibition of new distribution arrangements for long-term insurance products. However, it could be (mis)construed as prohibiting the sale of long term insurance products by banks in its entirety. This would be catastrophic for the industry given the key role that banks play in the distribution of these products.”

For more on this story, see here.

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