One of the challenges for an investor in any foreign country is how to get started with a brand new banking relationship.
The UAE is no exception to the challenge of achieving a new banking relationship, and this article is written to give you an understanding of the banking framework and how you may structure and prepare to achieve your first banking relationship.
UAE banks have come a long way in recent years to truly modernize their operations, offering an extensive range of services with streamlined digital processes for onboarding and account management. Customers can manage their affairs these days without any visits to a branch.
Typically, the banks operate on customer tier levels and categorize customers into:
- SME's; small start ups served entirely online or at local branches,
- Corporates; larger and more complex groups, served by dedicated relationship teams,
- Private; wealth and asset management services to HNW individuals, served by experts,
- Islamic; specific products and services compliant entirely with Shariah Law.
The local banks are generally majority government owned and partly listed on the financial markets.
International banks also operate in the free zones and local market, or as representative offices to facilitate their foreign clients.
Banks and financial institutions are regulated by the Central Bank of the UAE and the Securities and Commodities Authority on a federal level and by the two financial free zones DIFC & ADGM where relevant.
Whilst interim depositor guarantees have been provided by the government during the last financial crisis of 2008/9, there is no minimum depositor guarantee scheme currently in place. However, local banks have a strong financial track record and any weaker banks will typically be merged or absorbed into the larger banks rather than default. This is of course an important consideration for large depositors and for further discussion with the bank.
As a global financial center, the UAE government and banks are very welcoming to foreign investors who wish to reside and establish their business here.
It is important to bear in mind however, that the banks set their own policies in relation to further criteria that they would consider prior to onboarding, and some of the key considerations include:
- Business sector; some business activities are considered higher risk than others, and policies do vary significantly between banks,
- Ownership structure; the banks are required to identity the ultimate beneficial ownership of the entity and where ownership is via many corporate and trust layers, that will certainly complicated the onboarding process and may be problematic in achieving banking,
- Substance; since UAE banking is here to serve local businesses, the banks will need to review the level of commitment to the country by reference to residency visas, local accommodation, office set up, other existing local business interest, investment in local assets and other factors,
- Compliance; as a minimum, the banks will conduct PEP's & Sanctions checks globally, and whilst they expect to see a clear report, they may be prepared to consider any adverse results, depending on the timing and circumstances of those matters. Other KYC/KYB procedures are generally in line with international standards.
If you are seeking banking in the UAE for the first time, here are some of the matters you should plan and consider in preparation.
- Prepare a short plan which demonstrates your business history, achievements and plans for the future, as well as covering questions that may result from compliance checks and public sources of information,
- Consider the structure of your holding company or new business before you incorporate any entity, to align with current banking policies in terms of risk and scope of services,
- Gather your supporting documents in good time and arrange for legalization and translation well in advance, since the application process will certainly require many documents,
- Plan your visit to include 2-3 meetings with different bankers to achieve a broad perspective and create several options, and seek out those banks are a potential fit for your business,
- Consider how you will achieve local residency and identity as well as the level of substance you are prepared to build and that required of the bank,
- Manage the expectations of yourself, your business and those of the banks to align on the timing and outcomes of the new relationship.
As always, please feel free to reach out to your OnPro representative for a more detailed discussion on your plans for banking in the UAE, and we would be delighted to give you further insight and support you on your journey.