Businesses in UAE are expected to use a ‘substance over form’ approach to determine whether or not they undertake a Relevant Activity and, as a result, are within the scope of the Regulations. This determination would require the business to not only consider the activities stated under their commercial license or registration certificate but also to assess the activities carried out during a financial period.
Banking Business
“Banking Business” means the business of accepting deposits of money which may be withdrawn, or that are repayable on demand or after a fixed period, or after notice, by cheque or otherwise, and the use of such deposits, either in whole or in part, in:
- the making or giving of loans, advances, overdrafts, guarantees or similar facilities; or
- the making of investments, for the account and at the risk of the Licensee.
Licensees undertaking a Banking Business in the UAE would generally be licensed as a “Commercial Bank”, or an equivalent licensing category that allows for the acceptance of deposits, by either the Central Bank (for a Licensee established in “onshore” UAE), the Dubai Financial Services Authority (“DFSA”) (for a Licensee established in the Dubai International Financial Centre (“DIFC”)), or the Financial Services Regulatory Authority (“FSRA”) (for a Licensee established in the Abu Dhabi Global Market (“ADGM”)).
A Licensee that is part of a banking group and only provides advisory, arranging, and other services to clients of the banking group would generally not be considered to conduct a Banking Business (although such Licensee should consider whether it undertakes another Relevant Activity).
UAE businesses engaged in exchanging foreign currency and remitting money, and financial intermediaries in the sale and purchase of domestic and foreign stocks and bonds, currencies and commodities and money market transactions, are not considered a Banking Business for purposes of the ESR Regulations.
Licensees engaged in a Banking Business may also provide services or perform lease or financing activities as a normal part of their business operations. To prevent duplicate reporting, such Licensees are not also considered engaged in a separate Headquarter Business, Distribution and Service Centre Business or Lease-Finance Business and will not need to separately demonstrate economic substance in respect of such ancillary Relevant Activities.
Core Income-Generating Activities of a Banking Business
The ESR Regulations mention the following CIGAs for a Banking Business:
- Raising funds, managing risk including credit, currency, and interest risk – In addition to accepting deposits from the public, raising funds also includes raising capital, issuing bonds or going to the money markets. A Banking Business risk management activity would be aimed at ensuring the capital base of the Licensee is not eroded and to control the cost of funds. The key functions and related decision-making in respect of these activities are expected to be performed in the UAE.
- Taking hedging positions – Where the Licensee mitigates risks by taking opposing or offsetting positions, the Licensee must be able to demonstrate that the related activities and decisions making take place in the UAE.
- Providing loans, credit or other financial services to customers – A Banking Business would be expected to lend or otherwise invest its customer deposits and other available funds. The term “customer” is not limited to individuals, but also includes corporations and other financial institutions.
- Managing capital and preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business’ – The banking sector is highly regulated and involves various reporting to regulators and investors. The Licensee is expected to perform and oversee its reporting related functions and activities in the UAE.
How BSA can help you
Bader Saleh Audit of Accounts can assess if the entities and activities are within the scope of the economic substance regulations and/or whether the entity can benefit from any of the exemptions in the Regulations.
We can carry out a gap analysis that represents the current substance and corporate governance processes against what is required under the regulations.
We can support you in the preparation and submission of your annual notifications and economic substance report to the Regulatory Authorities.
Connect with our team at +97145707357 or send us an email at info@bsauditing.com.
