Modernising Supervision – The UAE's 2025 New Banking Law

The UAE has issued Federal Decree-Law No. (6) of 2025 Regarding the Central Bank, Regulation of Financial Institutions and Activities, and Insurance Business ("New Banking Law"). The New Banking Law was issued on 8 September, gazetted on 15 September and effective from 16 September.

The New Banking Law repeals the 2018 Central Bank Law ("Old Law") and the 2023 Insurance Law and consolidates prudential and conduct supervision of banks, other financial institutions, and (re)insurers under the Central Bank of the UAE (the "CBUAE"). Two other primary developments are: the formal introduction of a comprehensive early intervention and resolution regime administered by the CBUAE, and the codification of a digital money and payments framework that accommodates the Digital Dirham within the broader Central Bank Digital Currency ("CBDC") initiative, a core element of the CBUAE's Financial Infrastructure Transformation (FIT) programme, which aims at modernising the UAE's payment system and cross border payments.

Set out below is a banking focused summary in relation to the key provisions of the New Banking Law.

Early Intervention and Resolution: From Recovery to Executable Resolution

CBUAE Enablement

The New Banking Law enables the CBUAE to intervene well before failure and to resolve institutions decisively when needed. Building on the Recovery Planning Regulation issued by the CBUAE on 30 October 2023 (the "2023 Recovery Planning Regulation") — which required banks, foreign branches, and insurers to prepare recovery plans — the New Banking Law provides the CBUAE complete statutory powers from recovery to resolution.

Rights of Intervention

For early intervention steps, the CBUAE may require implementation of recovery measures, impose capital and liquidity add-ons, mandate strategic and structural changes, remove senior management, establish interim governance arrangements, and order a forced merger or acquisition. Where resolution is necessary, the CBUAE may appoint resolution administrators; transfer or sell assets and liabilities without shareholder or creditor consent; write down or convert liabilities; establish bridge institutions (to transfer part or all of the shares or assets, rights and liabilities to a temporary entity i.e. bridge entity) and asset management vehicles; effect bail-in; impose temporary stays and moratoria (with protections for central counterparties and settlement systems); and restrict secured enforcement in defined circumstances. The creditor hierarchy and order of payment are expressly codified for institutions under resolution, and resolution powers are tailored to insurers, including portfolio transfer and continuity measures.

A shift from the Old Law

These powers are materially different from the pre-existing administration powers of the CBUAE under the Old Law. They also create a coherent linkage to the 2023 Recovery Planning Regulation as recovery options will now be assessed against a statutory early‑intervention and resolution regime that the CBUAE can execute under the New Banking Law. In our reading, those changes are comparable to international resolution resolution regimes. The CBUAE, referred to as the State Resolution Authority under the New Banking Law, can deploy a full suite of tools—including transfers of assets and liabilities, bridge institutions, asset management vehicles, statutory bail‑in, temporary stays and moratoria, restrictions on secured enforcement, and override of shareholder approvals—to preserve critical functions and financial stability. Settlement finality, netting and collateral protections for designated FMIs are hard‑wired in statute, with precedence over general insolvency, mirroring international best practice.

International Standards

The UAE framework introduced under the New Banking Law now achieves functional equivalence to the level of core tools and FMI protections available under similar international resolution frameworks. Certain safeguards and calibrations—such as detailed pre/post‑resolution valuation standards, an express "no‑creditor‑worse‑off" test, and quantitative loss‑absorbing capacity metrics—are expected to be addressed through CBUAE implementing regulations and supervisory practice.

UAE Bankruptcy Law – The Interplay

The UAE Bankruptcy Law (Law No. 51 of 2023) expressly provides that it does not apply to banks, financial institutions, and insurance companies licensed by the CBUAE where special legislation regulates their preventive settlement, restructuring, or bankruptcy proceedings. In practice, this removed LFIs from the scope of the general bankruptcy framework and deferred to sectoral rules subject to the implementation of such rules.

The New Banking Law's detailed early‑intervention and resolution framework for LFIs now vests the CBUAE with resolution authority and executable tools. It can be argued that this is the special legislation contemplated by the Bankruptcy Law carve‑out.

The New Banking Law however contemplates that court‑supervised liquidation/bankruptcy may still occur where the CBUAE determines it is appropriate, but such processes are intended to be initiated or coordinated by the CBUAE and to operate within the sector‑specific regime. It is early stage to confirm the effect of the new resolution powers of the CBUAE on the bankruptcy regime under the UAE Bankruptcy Law and its consequential impact on, amongst other things, close-out netting involving a LFI, with more detailed analysis to follow in the coming few months.

Digital Dirham and the Payments Perimeter: A Statutory Home for CBDC

The New Banking Law reaffirms the CBUAE exclusive authority over retail and wholesale payment systems and related digital services, expressly covering digital banking operations, digital money, payment tokenization, and stored value facilities, including cross-border payment systems, and confirms the status of the Dirham—whether in physical or digital form—as legal tender in the UAE. "Currency" now expressly includes the Dirham in digital form, providing a clear statutory footing for the Digital Dirham as part of the UAE's CBDC program and eliminating ambiguity around the legal nature or treatment of CBDCs. At the same time, "virtual assets" are defined distinctly from currency and are brought within scope where used in licensed payment services.

Other Notable Features

Beyond resolution and digital money, the New Banking Law introduces several notable reforms while reaffirming key customer protections from the Old Law. Notably, the New Law:

• Designated Functions: Formalises and consolidates rules around Designated Functions and fit‑and‑proper regime with powers to prohibit unfit individuals.
• Complaints: Reconfirms the power of the CBUAE to establish an independent complaints unit with legal personality and judge‑chaired committees that issue binding decisions for bank and insurance customer disputes up to a monetary threshold and set appellate routes above that threshold, with insurance disputes required to go first to the unit. The Old Law empowered the CBUAE to establish a complaints unit. The New Banking Law sets more details which have only been largely referenced in the relevant regulations applicable to the current financial sector complaints unit "Sanadak" and extends the unit's remit to other LFIs.
• Compound Interest: Reinforces the prohibition on charging interest on accrued interest (compound interest) on facilities granted to customers.
• Deposit Protection: Other provisions also establish specialized stabilization and protection funds funded by levies to protect depositors, insured, and beneficiaries and to stabilize institutions in stress. The new provisions provide more clarity on the funding and use of the depositors' fund protection scheme which could signal future implementation of such scheme.
• ESG: Embeds sustainable finance/ESG mandate into CBUAE's statutory functions.
• Islamic Banking: Retains the Higher Shari'a Authority (the "HSA"). The resolutions of the HAS bind Islamic Financial Institutions and their internal Shari'a committees. Further, the HSA may opine on regulatory rules for Islamic institutions, approve Shari'a‑compliant instruments issued by the CBUAE and its subsidiaries, and, upon request, opine on sovereign sukuk and other Islamic instruments. The HSA may request specialized Shari'a audits. This is a continuity from the Old Law with clearer, broader articulation.

The New Banking Law also provides certain statutory relief for Islamic Financial Institutions, such as, in connection with Shari'a‑compliant financing facilities, dis-application of any registration requirements, fees, or similar charges for any asset purchased or sold wholly or partially, whether leased, rented, manufactured, or otherwise.

• FMI: Consolidates and expands the Financial Market Infrastructure "FMI" framework. The New Banking Law introduces a licensing regime for FMI operators and settlement institutions with fit‑and‑proper and systems‑control standards; a robust designation regime for systemically important FMIs; detailed finality and Default Arrangements that prevail over general insolvency and bankruptcy; and an exclusive CBUAE mandate over retail and wholesale payment systems and related digital services (including digital money, tokenized payments, stored value, and cross‑border systems). Transfers and settlements through designated FMIs are final, irrevocable, and irreversible; FMI rules and default arrangements prevail over general insolvency/bankruptcy; and netting and collateral enforcement are protected notwithstanding resolution, insolvency, or liquidation. Compared with the Old Law, these are material expansions in relation to regulation of FMIs.
• Cross border recognition: Gives the CBUAE an express discretionary power to recognize in full or in part — or refuse to recognize — resolution actions taken by a foreign or Financial Free Zone resolution authority. While UAE law does not adopt a general cross‑border insolvency recognition regime, this LFI‑specific mechanism for recognizing foreign 'resolution actions' is a significant development for cross‑border coordination in distressed scenarios of LFIs.
• Promotion activities: Retains the definition of "promotion" and the "in or from the State" test and the related prohibition in relation to promotion of Licensed Financial Activities without a CBUAE license. Notably, the prohibition on promotion has widened under the New Banking Law by applying the restriction to technology‑neutral perimeter, now expressly covering digital money, stored value, tokenized payments, and virtual‑asset payment services) and couples it with stronger enforcement.
• Foreign branches: Where a foreign (or Free Zone) institution with a UAE branch is merged or liquidated, the New Banking Law allows application of the home jurisdiction procedures to the UAE branch, unless that would adversely affect UAE financial stability or impair protection of UAE creditors.
• Fines: Expands administrative fines for institutions which can reach up to AED 1 billion or up to ten times the unjust gain or funds subject to violation; fines for Authorized Individuals rise to AED 5 million. The CBUAE may order disgorgement to customers, delink institutions from FMIs, and publish decisions (including naming violators) under Board‑set controls. Sanctions are immediately enforceable and may be auto‑debited from accounts or guarantees. The criminal offences chapter is expanded: breaching early‑intervention or resolution instructions is penalized, certain license violations carry higher ceilings, and FMI‑specific offences attract imprisonment and fines up to AED 10 million, with potential liability for responsible managers in cases of knowledge, negligence, or failure of duty.

Transitional Arrangements

Existing regulations, decisions, standards, guidelines, and circulars issued under the Old Law and the 2023 Insurance Law remain in force until expressly replaced. All persons and entities within scope have a one‑year period from entry into force to reconcile their position to the New Banking Law, with extensions at the CBUAE's discretion.

Practical implications for LFIs

LFIs should treat the New Banking Law as a programmatic change. In the near term, the financial sector may need to consider updates such as the market capacity/enforceability/netting opinions, refreshing lending, treasury, and derivatives documentation, align recovery and resolution plans and policies with the CBUAE powers, update governance for the Designated Functions authorization and strengthened board/senior appointment approvals if necessary. Multinational bank groups should also plan for the CBUAE's discretionary recognition or refusal of foreign resolution actions and the coordinated treatment of UAE branches.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.