Claims Against Financial Service Providers in the United Arab Emirates

Bank Regulatory Authorities in the United Arab Emirates 

There are mainly four different regulator’s that are responsible for the authorization and supervision of banks, insurers and other financial institutions. These include: The Central Bank of UAE (CBU), the Securities and Commodities Authority (SCA), the Dubai financial Authority (DSA), the Dubai International Financial Centre (DIFC), the Financial Services Regulatory Authority, and the Abu Dhabi Global Market (ADGM). The CBU under the law number (14) of 2018, has wide powers to supervise and sanction the financial institutions within its remit with the ability to censure, fine, sanction, and withdraw licenses and to cooperate with foreign regulators. These four organizations make sure that banks and other financial institutions operating in the UAE follow stringent guidelines meant to safeguard investors and consumers.

An accelerated procedure for handling debt claims has been implemented as a result of revisions to the UAE Civil Procedure Code. The creditor may be able to seek an immediate ex parte judgment where there is an unpaid debt that the debtor has recognized (without notice to the debtor). There will probably be more claims submitted through the expedited process.

The DFSA is in charge of policing authorized businesses and financial services operations in the DIFC. The Regulatory Law forbids behavior that is dishonest, fraudulent, or intentionally misleading. The conduct of business module of the DFSA Rulebook elaborates on this further and imposes the following obligations on authorized firms:

• Avoid communicating in a deceptive or misleading manner; confirm that the recommended financial product or financial services are appropriate for the specific consumer; and
• avoid having interests that conflict with those of either its customers or those of one customer with another.

 

Options Available for Legal Action Involving Financial Services?

Customers who file claims against onshore financial service providers in the UAE, will have recourse under the Civil Code. According to the Civil Code, individuals may be entitled to one or more of the following:

• Restitution;
• financial recompense; and
• injunctive relief is not a concept in the Civil Code, but customers can seek asset attachment when necessary.

When it appears to the court that the defendant's behaviour was particularly egregious or offensive, the Law of Damages and Remedies gives the court the discretion to award multiple damages (no more than three times the actual damages). The DIFC courts granted multiple damages (of twice the number of damages) on the grounds that there had been deliberate malpractice committed with intent to deceive.

 

Punishments for Financial Crimes

• AED 100,000 to 500,000 in fines and up to 10 years in prison are the penalties for money laundering;
• A bounced check can result in a prison sentence of one month to three years, a heavy fine, and victim compensation;
• A significant fine and jail term are associated with credit card fraud;
• A significant fine, a prison sentence ranging from one month to three years, and victim restitution are all consequences of embezzlement;
• The punishment for forgery is at least 15 years in prison, steep penalties, and probation;
• Identity theft is a felony offense that carries a harsh fine, probation, and a permanent blot on the offender's criminal record as punishment; and
• Heavy fines are imposed for insurance fraud.

 

Case Law 

In the recent case of Abu Dhabi Commercial Bank Pjsc v Shetty & Ors [2022] EWHC 529 (Comm), where the High Court brought proceedings against several shareholders of a company for deceit and unlawful means of conspiracy under explicit grounds of forum non-conveniens. In this instance, the Court determined that UAE law, not English law, should have been used to resolve the dispute. This was because the loss that the bank sought to recover from the shareholders occurred in the UAE, where UAE-domiciled entities had used the credit facilities. To put it another way, the direct loss happened where the facility was used, not where the agreement to make the facility available was signed. For these purposes, only direct harm is acceptable. Therefore, it was impossible to claim that the damage had happened in England. However, if another forum is obviously and undeniably the more appropriate forum for the claim, the Court will decline to exercise jurisdiction. Considering the circumstances of this case, the Court determined that Abu Dhabi was the more suitable venue, in part (among other reasons) due to its finding that UAE law was applicable. Furthermore, the proceedings were suspended after the court ruled in favor of the shareholders. In its opinion, there was an alternative forum in Abu Dhabi that was clearly and undeniably more appropriate for the trial of the claim than England, and there were no justifiable reasons why the claim needed to be tried in England rather than Abu Dhabi.

 

Filing A Complaint Under the Relevant Authorities

The first line of defence for a customer with a problem is to attempt a direct resolution with the institution's branch staff or contact centre, the next step is to formally complain to the bank's complaint unit if such a settlement is not feasible. Thereafter, the bank must make an effort to address client complaints in a timely manner, the customer will need to get legal counsel from the best finance lawyers if the issue is not resolved or if there is a disagreement over one of the bank agreement's obligations. However, the customer has the option of taking the dispute to court. Thus, when a problem has been addressed by the bank but is still unresolved, a customer may file a complaint with the Central Bank of the UAE's Consumer Protection Department. Additionally, the CBU guidance, which was created in accordance with recommendations made by the Financial Action Task Force (FATF), aims to promote the UAE as a country that complies with anti-money laundering best practices. However, it does not provide a comprehensive list of measures, and financial institutions are ultimately expected to conduct their own risk-based analyses to determine the best course of action.

The Dubai financial services authority (DFSA), allows individuals to file a formal complaint addressing their issues addressed to the Office of the General Counsel, handled under confidence by DFSA. The DFSA must certify to us that the Dubai financial center (DIFC) Firms, have authorized effective systems in place to address customer complaints. These procedures are intended to assist in resolving the dispute with the business directly. Individuals must try dealing with the Authorized Firm before contacting the DFSA, as it is also in the company's best interest to resolve the complaint, this is frequently quicker and more effective. In the UAE, the regulation of fintech companies has been organized by DFSA. Additionally, the DFSA has been collaborating closely with fintech companies to support their growth and development since it was one of the first financial regulators in the world to issue specific guidance for fintech firms operating in or from DIFC.

On 7 April 2022, the DFSA introduced a new Whistleblowing regime (the Regime), to strengthen whistleblower culture in DFSA-regulated firms, encourage more reporting, and foster an ethical culture inside the DIFC by discouraging wrongdoing. Also, to better safeguard those who disclose issues within the DIFC. According to the DFSA, the Regime's objectives are to:

• Better legal protection for those who report concerns about regulations;
• enhance the DFSA Regulated Entities' whistleblowing culture and increase transparency regarding how those Entities will address regulatory concerns;
• promote greater regulatory concern disclosures; and
• discourage wrongdoing, encourage better compliance, and foster an ethical culture by raising awareness that wrongdoing is more likely to be reported.

Moreover, the financial services regulatory authority (FSRA), has the authority to handle complaints involving: Potential misconduct related to the delivery of financial services in the Abu Dhabi global market (ADGM); conduct that may be in violation of FSRA-mandated laws; or conduct that endangers the ADGM's reputation or the integrity of the financial services sector in the ADGM. The initiatives taken by ADGM to enhance ethical procedures for financial crime compliance are under the control of DGM Financial & Cyber Crime Prevention (FCCP), this involves adhering to international tax reporting requirements like the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard, as well as anti-money laundering and countering the financing of terrorism (AML/CFT) regulations (CRS). Using a risk-based approach, FCCP's work entails locating, evaluating, and reducing financial crime risks in ADGM. Additionally, FCCP collaborates closely with ADGM's Regulators to guarantee that ADGM's framework for preventing financial crime is consistent with global best practices.

 

Common Course of Action

Additionally, an expedited procedure for handling debt claims has been implemented due to revisions to the UAE Civil Procedure Code. The creditor may be able to seek an immediate ex parte judgment where there is an unpaid debt that the debtor has recognized (without notice to the debtor). There will probably be more claims submitted under the expedited process. There is also a chance that the CBU will step up its enforcement efforts. On October 1 2018, Federal Statute Number (14) of 2018 (Central Bank Law) took effect, replacing the prior central bank law (Federal Law Number (10) of 1980). The CBU and financial services are governed by the Central Bank Law, which expressly forbids the marketing of financial services without a federal license. This, CBU enforcement authority is increased under the Central Bank Law, it now has the power to impose a wider array of punishments, including as fines, compliance orders, the suspension or revocation of licenses, and even jail. The Central Bank Law also contains provisions governing the recognition of foreign judgments in regards to a financial institution licensed in the UAE and the enforcement of regulatory laws abroad.

Legislation governed by the UAE Central Bank, the UAE Insurance Authority, the Emirates Securities Commodities Authority, general legislation pertaining to contracting parties such as Federal Law Number (5) of 1985 (Civil Code), and in the context of financial brokers, Federal Law Number (18) of 1993, are where non-contractual duties owed by financial services providers to customers onshore in the UAE are primarily found (the Commercial Transactions Code). The ability to argue that obligations owed by financial institutions to the relevant regulators are also obligations owed directly by a financial institution to its customers has not been established by any public judgments from the UAE or DIFC courts. Hence, we are not aware of any cases to date where either the UAE or DIFC courts have examined the existence of a concurrent non-contractual duty to abide by the pertinent regulatory framework. Common law claims are not permitted by the UAE's statute system on domestic soil. However, claimants who can demonstrate that they purchased securities as a result of relying on misrepresentations, untrue or misleading statements or omissions in a prospectus, listing particulars, or periodic financial disclosures may be able to do so under the Civil Code.

 

Remedies Available to Individuals

If the UAE courts are given jurisdiction, they probably would not follow the parties' choice of governing law and instead apply UAE law. When it appears to the court that the defendant's behaviour was particularly egregious or offensive, the Law of Damages and Remedies gives the court the discretion to award multiple damages (no more than three times the actual damages). The DIFC courts granted multiple damages (of twice the number of damages) in a case on the grounds that there had been deliberate malpractice committed with intent to deceive. Thereafter, customers seeking to recover losses caused by a breach of contract or duty of care may rely on the Regulatory Law and the Law of Damages and Remedies when filing claims against DIFC financial service providers under DIFC law or regulation. According to DIFC Law Number (7) of 2005 (the Law of Damages and Remedies), a customer may be eligible for one or more of the following remedies (depending on the circumstances) if they have suffered the loss (as a result of the financial service provider's failure to perform the contract or a breach of an obligation under the Law of Obligations): any additional order that the DIFC court deems appropriate, including restitution, compensation or damages, specified performance, injunctive relief, and other relief. Injunctive relief is not a concept in the Civil Code, but customers can seek asset attachment when necessary.