Financial regulators in the United Arab Emirates have upped the ante for insurance firms looking for customers in the country with a raft of strict, new rules to govern the sector.
The UAE Insurance Authority has signalled that from November 28, 2014, updated insurance broking regulations will apply to financial firms.
Many smaller firms look destined to leave the market as the regulator raises the financial bar to make trading unprofitable for all but the largest players.
What the rules demand
The rules call for:
- Raising capital requirements by locally incorporated brokerages has been hiked from £163,000 (AED 1 million) to £490,000 (AED 3 million) and to £1.65 million (AED 10 million) for foreign firms
- Unconditional bank guarantees have increased significantly
- The rules will put up running costs for firms by separating staff responsible for regulatory and compliance roles from those who deal with customers.
Regulated firms will need a chief executive or managing director, operations manager, internal auditor, individual head of each line of business and a separate head of each branch. These staff will need to hold the necessary qualifications to manage their roles and will not be allowed to deal with customers directly.
Nigel Green, founder of global financial advice firm DeVere and owner of UAE-based wealth management advisers Acuma argues the new rules will price many firms out of the arena.
Shake up will strengthen market
“I calculate that these additional staffing obligations could add an extra £163,000 a year (AED 1 million) to overall running costs of a brokerage in the UAE,” he said.
“To my mind, industry standards in the region will skyrocket as a result of this action because, first and foremost, it will move to eradicate unlicensed, under-resourced and/or under-capitalised brokers who have had alarming potential to undermine the sector.”
Green also explained that only six or so of around 160 firms in the UAE financial services sector have sufficient resources to meet the new rules.
“I fully expect many of the advisers who find they will not be able to meet the new requirements will seek to join these larger, established firms. Such a move will, typically, be advantageous for them as they will be backed by comprehensive resources, products and back-up support to which they have not previously had access,” he said
“The shake-up is an unequivocal sign of the maturing of the UAE’s financial services sector and one that should be welcomed.”
