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The Laws and Regulations governing Banking in Oman


The following Q&A, originally published for Lexis Middle East, answers important questions regarding the laws and regulations governing Banking in Oman.
  1. What are the main laws regulating the banking sector in this jurisdiction and what do they cover?
The banking sector in Oman is controlled by the following laws and regulations:
  • The Banking Law (“BL”) promulgated by a Royal Decree no. (114/2000) and its amendments.
  • The Islamic Banking Law Regulatory Framework (“IBRF”) issued on the 18th of December 2012 by the Central Bank of Oman which has provided licensing rules and guidance applicable to banks and Windows regulated and supervised by the Central Bank of Oman (“CBO”) and Sharia governance framework to ensure Sharia compliance in Islamic banking operations of Islamic banking institutions in Oman.
  • The circulars issuing by Board of Governors of CBO.
  • Decisions issued by the Capital Market Authority.
  1. What is the name of the main regulators responsible for regulating the banking sector and which areas do they cover?
CBO is responsible for regulating and guiding the banks including the conventional and Islamic banks, and the Capital Market Authority is responsible for regulating the insurance providers in Oman.

  1. What is the definition of a bank in this jurisdiction?
As per the Banking Law (“BL”) promulgated by Royal Decree no. (114/2000) and its amendments, the bank is defined as: “Any person licensed by the Central Bank authorised by the jurisdiction in which it is organized to carry on the banking business”.

Further, banking business is also defined as: “The undertaking as the principle and regular course of business conduct”, as such business conduct may be defined and interpreted by the Board of Governors of the Central Bank, in any one or more of the following activities or such additional activities may be specifically authorised in amendments to the law by the Board of Governors of the Central Bank in a licence issued pursuant to the BL:
  • the operation of receiving monies as demand or time or saving deposits;
  • the opening of current accounts and credits;
  • the loan of money or extension of credit;
  • the loan of money on personal, collateral or real property securities;
  • operation of credit card business;
  • the issuance and negotiation of letters of guarantee and letters of credits;
  • the payment and collection of checks, orders, payment vouchers and other negotiable instruments;
  • the sale and placement of bonds, certificates, notes or other securities;
  • the acceptance of items for safekeeping; the exercise of fiduciary powers;
  • the undertaking of Investment and Merchant Banking and other Financial activities which may include but not be restricted to:
    • corporate finance,
    • project finance,
    • investment brokerage and investment advisory services,
    • investment management,
    • the underwriting of securities,
    • custodian and fiduciary services,
    • leasing,
    • factoring,
    • hire purchase financing
    • any other similar activities approved by the Board of Governors as banking business or the purchase, sale and exchange of foreign and domestic currency or other monetary assets in the form of cash, coins and bullion, provided, however, that natural persons who deal exclusively in the business of exchanging foreign and domestic currencies on a retail basis and persons engaged in the operation of retail business establishments and places of public accommodation who exchange foreign currencies only as a convenience to their customers shall not be deemed to be engaged in the banking business.
  1. Are the same institutions able to provide regular and Islamic banking services?
Yes, the same institutions are entitled to offer both conventional and Islamic banking products to the public at large provided that they obtain the required licenses including the licenses for the Islamic window of domestic conventional banks under Clause 4.3 of IBRF.

  1. Are there any special regulatory requirements for those providing Islamic banking services?
A full-fledged domestic conventional bank and branches of a foreign bank who wish to conduct Islamic banking business in Oman shall be Sharia-compliant and shall conduct its activities, operations and business in accordance with the rules and principles of Sharia as per Article 1.4 of IBRF. In addition, every financial institution who provides Islamic banking business in Oman shall be supervised by a Sharia supervisory board that will guide that bank or its Islamic banking window in designing and implementing its products and conducting its Islamic banking activities.

  1. Does banking regulation operate in a different way in any free zone jurisdiction?
No, there is no difference in the way Islamic finance can be operated onshore and in any free zone in Oman.

  1. What are the main steps a bank needs to take if it wishes to provide banking services in this jurisdiction?
Filing a formal request for final approval - domestic banks
  • This shall follow granting of initial approval by the Central Bank.
  • License fee of RO 5,000; 17
  • Evidence of receipt of paid-up capital in the name of the bank; this shall be a minimum of RO 100 million and should preferably cover projected losses, if any, in the initial years.
  • Payment of capital deposit to the Central Bank (this will be one tenth of one percent of the global assets of the bank forecast on establishment) with minimum of RO 50,000 and maximum of RO 500,000.
  • Copy of lease agreement with lay out for head office / branch(es);
  • Letters of clearance from Royal Oman Police and fire prevention authorities for the premises.
  • List of directors and authorized officials of the bank with specimen signatures.
  • Confirmation that commercial company’s law, commercial registration and municipality and other government requirements have been completed and approvals received (with copies of evidence, including commercial registration print out, as may be relevant);
  • Letter of undertaking on qualification and continuity of management;
  • Confirmation that staff, IT systems and all other infrastructure, internal policies and procedures, product programs and all other pre-requisites are in place and that all conditions of initial approval/licensing requirements, including Shari‟a governance structure and systems, have been met.
  • The applicant should nominate a suitable official in time to liaise with all the concerned departments of the Central Bank to ensure familiarity and compliance with regards to regulatory, supervisory, operational / reporting stipulations, payment systems, bank credit and Statistical Bureau, cheque return system, currency, and treasury requirements.
  • Draft Articles and Memorandum of Association and public offer documents should be submitted well in time for the Central Bank’s review and observations if any.
  • Details of proposed SSB members and a letter of confirmation that they follow the fit & proper criteria of the Central Bank should be submitted.
  • The Founders’ Committee should promptly keep the Central Bank apprised of the preparatory and completion progress and details including public issue.
  • Copies of the Articles and Memorandum of Association; and
  • Evidence of compliance with CMA requirements (e.g., the certified minutes of constituent meeting).
Application process - foreign banks
  • This Article shall apply to foreign banks, not operating in Oman and seeking to open Islamic banking branches in Oman.
  • An application for a license process must be in line with the form prescribed by the Central Bank.
  • The application process for foreign banks will involve the following steps:
Filing a request letter - foreign banks

It is recommended that a foreign bank initially file a letter of request, highlighting the bank’s background (with audited financials for the last three years) and providing justification for interest in commencing Islamic banking in Oman, business vision, plans, strategies, and business focus.

Filing a formal request letter for initial approval - foreign banks
  • Formal application from the authorized official of the bank along with the list of shareholders holding 5% or more of the subscribed capital and details of directors and senior staff of the bank.
  • Audited financial reports of the bank for the last three years.
  • Detailed feasibility report covering at least five years of forecast.
  • The feasibility report shall be a comprehensive and professionally prepared report, in detail, covering the vision, business policies, strategies and projections, highlighting organization structure including Shari’a governance and compliance set up, risk management approach and details, SWOT analysis, stress testing, etc.
  • Payment of application fee of RO 5,000;
  • Copy of the bank’s board resolution, approving opening of the branch in Oman, providing authority to the signatory to sign the application and complete the application requirements and submitting assurance of head office guarantee on approval of the application.
  • Letter from the home country supervisor approving the new branch and assuring signing of Memorandum of Understanding and supervisory cooperation on approval; and
  • Any other requirement the Central Bank may call upon in specific circumstances.
Filing a formal request for final approval - foreign banks
  • This shall follow grant of initial approval by the Central Bank.
  • License fee of RO 5,000;
  • Evidence of receipt of assigned capital in the name of the branch; this shall be a minimum of RO 20 million and should also preferably cover projected losses, if any, in the initial years.
  • Payment of capital deposit to the Central Bank (this will be one tenth of one percent of the global assets of the bank with minimum of RO 50,000 and maximum of RO 500,000);
  • Letter of guarantee from the head office;
  • Letter of confirmation from the head office on availability / continuance of adequate Shari’a governance arrangements including suitability of SSB members.
  • Copy of lease agreement for the premises of the main office / branch(es); Islamic
  • Letters of clearance from Royal Oman Police and fire prevention authorities for the premises.
  • List of authorized officials of the branch(es) with specimen signatures.
  • List of authorized officials of head office (with specimen signatures) for communication with the Central Bank.
  • Confirmation that commercial company’s law, commercial registration and municipality and other government requirements have been completed and approvals received (with copies of official evidence) and confirmation that conditions of initial approval and licensing requirements have been met.
  • Letter of undertaking on qualification and continuity of management; and
  • Confirmation that staff, IT systems (core banking systems should support Islamic operations), internal policies and procedures, product programs and all other pre-requisites are in place and that all the conditions of initial approval and licensing, including Shari’a governance structure and systems, have been fully met.
  • Details of proposed SSB members and a letter of confirmation that they follow the fit & proper criteria of the Central Bank should be submitted.
  • The applicant should nominate a suitable official in time to liaise with all concerned departments of the Central Bank to ensure familiarity and compliance with regards to regulatory, supervisory, operational / reporting stipulations, payment systems, bank credit and Statistical Bureau, cheque return system, currency, and treasury requirements.
  1. Are there any special passporting rules or exemptions for banks which already operate in other jurisdictions?
No there are no passporting rules or exemptions for banks which already operate in other jurisdictions.

  1. Are there any laws or rules governing lending to consumers or businesses?
Yes, CBO issues circulars, rules and regulations governing the lending to consumers and business in Oman.

  1. Are there any particular laws or rules on guarantees?
Laws on guarantees are found in various Omani laws, namely, the Commercial Companies Law (the “CCL”) promulgated by Royal Decree 04/1974, the Law of Commerce (the “CL”) promulgated by Royal Decree 55/1990, and the Omani Civil Transactions Law (the “Code”) promulgated by Royal Decree 29/2013.

Under the Code, the guarantors are jointly and severally liable among themselves and, with the principal debtor and the creditor, may choose to proceed directly against the guarantor or simultaneously against both the guarantor and the principal debtor regardless of whether or not the principal debtor is solvent.

  1. Are there any specific laws governing customer protection of banking clients?
As per Article 63 of the BL promulgated by a Royal Decree no. (114/2000), the licensed banks may be required to maintain reserves for the protection of depositors. Moreover, CBO issued Operating Rules regarding Mobile Payment Clearing and Switching System in July 2017 where the payment service providers are obliged to issue well-defined guidelines for dealing with customers utilizing mobile payment services to guarantee customers education and awareness. These guidelines shall be available to customers, whether in the form of brochures or published on the website of the PSP.

  1. Who do rules on capital adequacy operate and how are they enforced?
The CBO regulates the requirement of capital adequacy for the licensed banks in Oman. There are CBO rules and regulations on capital adequacy standards issued through circular BM 1009 on Guidelines on Basel II, Islamic Banking Regulatory Framework and BM 1114 on Regulatory Capital and Composition of Capital Disclosure Requirement under Basel III.

a. The major highlights of the CBO regulations on capital adequacy are: to maintain capital adequacy ratio (CAR) at a minimum of 11% effective from 01.04.2018. Previously the minimum CAR requirement was 12%;

b. The predominant form of capital shall be Tier 1 capital of which Common Equity Tier (CET1) will form the major component.

c. To maintain capital adequacy ratio (CAR) at a minimum of 13.5% (including capital conservation buffer) effective from June 1, 2019

d. The bank is required to maintain at all times, the following minimum capital adequacy ratios:
  1. Within the overall requirement of 13.50% CAR (including capital conservation buffer), Tier 1 ratio is to be maintained at a minimum of 11.50%,
  2. Within the minimum Tier 1 ratio of 11.50%, minimum CET 1 ratio is to be maintained at 9.50%,
  3. Further, within the minimum overall capital ratio of 11% (excluding capital conservation buffer), Tier 2 capital can be admitted up to a maximum of 2% of Risk Weighted Assets (RWA) of the Bank.
e. To adopt the Basel II standardized approach for credit risk, using national discretion for:
  1. Adopting the credit rating agencies as external credit assessment institutions (ECAI) for claims on sovereigns and banks;
  2. Adopting simple/comprehensive approach for Credit Risk Mitigants (CRM)
  3. Treating all corporate exposures as unrated and assign 100% risk weight.
f. To adopt standardized approach for market risk and basic indicator approach for operational risk.

g. Capital Adequacy returns are submitted to CBO on a quarterly basis and the Bank’s external auditors review capital adequacy returns on an annual basis.

  1. In the event a bank goes bankrupt does the state provide any guarantees to consumers.
The state does not provide any guarantees to consumers in case a bank goes bankrupt however the Bank Deposits Insurance Scheme (BDIS) was formed and is regulated by virtue of Royal Decree No. 9/95 dated 26th March 1995 (with certain amendments to the Law in 2000 (RD 111/2000) and 2010 (RD 70/2010). It is mandatory for all licensed banks receiving deposits to be member in the Bank Deposits Insurance Scheme (BDIS)

While the Central bank of Oman’s Board of Governors is the authority responsible of issuing the BDIS regulation, it is the Administrative Committee, which is responsible of managing the scheme’s operations. Deposit Insurance is one of the key elements in maintaining confidence in the banking system and promoting financial stability. It is an integral part of financial safety net, providing certain risk coverage for depositors, prompting savings and confidence in the banking sector.

For the BDIS, the initial Capital of OR. 10 million was paid by Central Bank of Oman and the Commercial banks operating in Oman. Since its formation, the BDIS funds have managed to grow from return on investments and the annual premiums that were collected, from member banks, based on 0.02% , then 0.03% and 0.05%, now, of banks total deposits obligations. CBO contributes 50% of banks’ contributions.

  1. Are there any rules or regulations on application of interest?
As per Article 14 of the Banking law, the Board of Governors shall be authorized and empowered to do the following:

(m) To promulgate regulations of the Central Bank prescribing limitations on the amount and nature of foreign currencies and securities held within the Sultanate by licensed banks, procedures to be followed by licensed banks in trading therein, and the uncovered foreign exchange position which may be maintained by licensed banks.

(r) To promulgate regulations of the Central Bank establishing rates of interest to be paid on time and demand deposits and of interest to be charged for the loan of money or extension of credit by licensed banks.

Accordingly, CBO issues Circulars from time to time on application of interest, the last one being ​BM 1112 - Personal Loans – Interest Rate Ceiling issued on 02 October 2013 and determined 6% as maximum ceiling for interests to be levied by the banks.

  1. Are there laws or rules governing transactions between related parties in the banking sector?
As per Article 68(b) of the BL, the total direct or contingent obligation to any licensed bank by a person and his related parties, other than the Government of the Sultanate shall not exceed 15 percent of the amount of the net worth of such licensed bank. In case of a senior member in the management of the licensed bank and any related parties, the total obligation shall not exceed 10 percent of the amount of the net worth of such bank provided further that, the aggregate of lending to all senior members and any related parties, shall not exceed 35 percent of the amount of the net worth of such bank or up to any other limit specified by Board of Governors.

Moreover, the Capital market Authority of Oman adopted a Code of Corporate Governance for Public Listed Companies in July, 2015, as updated in December, 2016. The Code states that the company must adopt the highest degree of transparency and clarity when it comes to Related Party Transactions (“RPT”). All such transactions must be subject to review of the audit committee and approved by the board of directors or general meeting (as the case may be) prior to execution.

  1. Are there any activities banks are prohibited from undertaking?
Authorization and disclosure of banking activities as per Article 64 of the Banking Law:

(a) A licensed bank operating within the Sultanate or a branch of a domestic bank operating outside the Sultanate shall be authorized to undertake any one or more of the activities constituting banking business as defined in Article 5 of this Law, to the extent that such activities have been authorized in the license granted to such bank.

(b) A licensed bank shall display the license issued hereunder and shall, upon request, disclose to customers and to any other person the banking activities which the licensed bank has been authorized to undertake.

(c) A licensed bank operating within the Sultanate or a branch of a domestic bank operating outside the Sultanate shall not, directly, or indirectly, as principal or agent, engage in any business or other activity other than that authorized by Article 64 (a) of this Law.

  1. What supervisory powers do the banking regulators have over banking activities?
The Board of Governors shall be authorized and empowered to do the following:

(a) To establish the appropriate monetary policy for the Sultanate.

(b) To examine at its discretion, the accounts, books, records, and other affairs of any bank licensed or seeking to be licensed by the Central Bank. The Board of Governors may, in its discretion, delegate responsibility for undertaking any such investigation provided that appropriate action is taken to ensure that such investigation is held in the strictest confidence and that a full report of such investigation is submitted for review to the Board of Governors.

(c) To review the reports prepared pursuant to Article 14 (b) of this Law; to review the applications of banks seeking to be licensed in the Sultanate in accordance with Article 54 of this Law; to entertain requests by licensed banks to establish branches in accordance with Article 56 of this Law and to take such action as may be required to properly supervise and regulate banking in the Sultanate pursuant to Title Four of this Law.

(d) To set the standards and rates at which the Central Bank may purchase, sell, enter repurchase or reverse repurchase agreements, discount or rediscount the following held by licensed banks or by other banking institutions with which the Central Bank has been authorized to interact:

(1) commercial paper, including promissory notes maturing within 90 days, promissory notes for seasonal fishing and agriculture operations maturing within 180 days

(2) treasury bills and Bonds of the Sultanate

(3) bills, bonds, debts, and commercial paper for any of the Ministries, institutions or corporations of the Government of the Sultanate if they are guaranteed by the Government of the Sultanate.

Provided that the Board of Governors may, in its discretion, delegate the undertaking of such responsibilities within the Central Bank.

(e) To supervise and regulate all matters related to the currency of the Sultanate including the printing of currency notes, the minting of coins and the safeguarding, issuance and retirement of such notes and coins, as provided by Title Three of this Law.

(f) To require the creation of adequate provisions for treatment of or for the writing off doubtful or worthless assets on the books and balance sheets of licensed banks in reports submitted to the Central Bank pursuant to Article 72 of this Law and published and displayed in accordance with Article 72 (d) of this Law.

(g) To withdraw the license or suspend the operation of any licensed bank in the Sultanate or to impose such other sanctions as have been authorized by the regulations of the Central Bank and as may be appropriate under the circumstances for failure to comply with directives or policies of the Central Bank or for any violation of the provisions of this Law, the rules and regulations of the Central Bank and other applicable laws of the Sultanate or if the Board of Governors determines that such bank is in an unsound or unsafe condition or that such suspension or other sanction would be to the best interest of depositors in the Sultanate and to take possession of any suspended bank, administer it during the period of suspension and, when deemed necessary, to liquidate and close or to reorganize such bank or to reopen or to order, at any time, the sale in whole or in part of business, property, assets and/or liabilities of such bank or take any other similar actions pursuant to Title Four of this Law and the rules and regulations of the Central Bank promulgated thereunder;

(h) To exercise general administrative supervision over the Central Bank, its officers, and its employees.

(i) To receive and review the annual report of the Central Bank, to make recommendations that will improve the effectiveness of the Central Bank in fulfilling its own mandate and contributing to the goals of the Government of the Sultanate and to forward the report of the Central Bank by the Chairman to His Majesty the Sultan with the recommendations of the Board of Governors thereon.

(j) To select, designate or employ officials, employees, advisers, special experts, or consultants necessary to the proper and effective functioning of the Central Bank and to delegate to such officials, employees, advisers, special experts, and consultants such powers and duties which the Board of Governors may, from time to time, decide are necessary to the effective functioning of the Central Bank or to ensure compliance with the rules and regulations of the Central Bank.

(k) To determine by two thirds, vote of all members of the Board of Governors present at a meeting the level of the reserves against deposits or any other reserves required pursuant to Articles 62 and 63 of this Law to be maintained with the Central Bank by the licensed banks and to adjust such reserve requirements within the limits set by Articles 62 and 63 of this Law or amendments thereto.

(l) To promulgate regulations of the Central Bank related to currency control including, but not limited to, limitations on the foreign currency to be held within the Sultanate by licensed banks, the interest to be paid on non-resident accounts held by such banks within the Sultanate and restrictions or limitations on the foreign transfer of currency of the Sultanate or its removal from the Sultanate should such action be required to maintain the value, supply and stability of credit and currency in the Sultanate;

(m) To promulgate regulations of the Central Bank prescribing limitations on the amount and nature of foreign currencies and securities held within the Sultanate by licensed banks, procedures to be followed by licensed banks in trading therein, and the uncovered foreign exchange position which may be maintained by licensed banks.

(n) To establish the legal framework or structure necessary to provide insurance for the deposits of licensed banks and to issue the necessary regulations and rules for that purpose.

(o) To promulgate and enforce rules and regulations related to the provisions of this Law; banking regulations generally, and any activities undertaken by the Central Bank in relation to banking business or the use of banking instruments.

(p) To form committees within the Board of Governors to consider matters referred or delegated to the Board of Governors by His Majesty the Sultan, the Council of Ministers, members of the Board of Governors or other designated officials of the Central Bank; or any others deemed competent by the Board.

(q) To promulgate regulations of the Central Bank and to issue directives to licensed banks concerning the relationship between collateral and the purposes of the loan secured by such collateral and the limitations on the amount of collateral which a licensed bank may require as security for the loan of money or the extension of credit.

(r) To promulgate regulations of the Central Bank establishing rates of interest to be paid on time and demand deposits and of interest to be charged for the loan of money or extension of credit by licensed banks.

(s) To undertake such other responsibilities and projects as may be specifically delegated to the Board of Governors by His Majesty the Sultan, or by the provisions of other laws of the Sultanate; and

(t) To represent the Government of the Sultanate, when so designated by His Majesty the Sultan, in international financial and monetary agencies in which the Sultanate shall participate and to appoint representatives, committees or to otherwise participate in the activities, proceedings and negotiations of other central banks or international financial and monetary agencies.

(u) To consider the banking and financial recommendations made by international agencies and supranational organizations and adopt those which are consistent with public interest without conflicting with the provisions of applicable laws of the Sultanate.

ARTICLE 15 RESIDUAL POWERS

In addition to the powers and duties specifically enumerated and reserved to the Board of Governors by the provisions of this Law, it shall have such other authority necessary to perform all acts required for the proper administration of the Central Bank, the issuance of currency and the regulation of the banking institutions engaged or seeking to engage in banking business in the Sultanate, when such actions or acts are pursuant to the objectives of this Law and are not in conflict with the provisions of this Law and other laws of the Sultanate.

  1. What are the main penalties the banking regulators have at their disposal?
Same as above.

  1. What happens when a bank becomes undercapitalised?
As it currently stands, the shareholders of the banking companies are not expressly obliged to provide additional liquidity in situations where the bank is undercapitalized due to a shortfall. But the bank is obliged to balance out the capital to the extent CBO requires. The CBO has issued CP-2: Guidelines on Composition of Capital Disclosure Requirements while requires the banks to comply with the Basel III standards of capital adequacy since January 2018. If the bank cannot reach capital adequacy in the timeline set forth by the Central Bank, it could be fined or its license to conduct banking cancelled.

  1. Are there any rules on bank ownership?
Reorganization and change in control of licensed banks:

(a) No licensed bank shall amend its constitutive contract or articles of incorporation or effect any change in its organization or operation in a manner which would have required such licensed bank to furnish different information in its application for a banking license submitted to the Board of Governors in accordance with Article 54 of this Law without obtaining the prior approval of the Board of Governors to such amendment or change.

(b) No person or a group of persons acting individually or jointly or for a common purpose shall own or authorise or record the transfer of more than ten per cent of the voting shares, or the equivalent thereof, of a licensed bank without obtaining prior approval of the Board of Governors to such ownership or transfer, provided also that the licensed bank shall not affect such record or transfer without obtaining prior approval of the Central Bank.

(c) No commercial company or other business entity holding ten percent or more of the voting shares, or the equivalent thereof, of a licensed bank shall merge into or combine with or effect a consolidation with any other business entity or issue, authorise or record the transfer of any interest in itself in excess of 25 percent of its outstanding voting shares, or the equivalent thereof, to any person or any group of persons acting jointly or to a common purpose without obtaining prior approval of the Board of Governors to such merger, consolidation, issuance or transfer.

(d) No licensed bank shall merge into or combine with or effect a consolidation with any other business entity without obtaining prior approval of the Board of Governors to such merger or consolidation.

(e) Applications for approval of any transaction specified in this Article 57 shall be submitted to the Board of Governors in such form as may be required by regulations of the Central Bank.

(f) Any application filed pursuant to this Article 57 shall be approved or denied by the Board of Governors within 90 days of the date on which such application was filed and shall be approved by the Board of Governors if it determines, in its discretion, that such approval will not adversely affect the depositors or creditors of the licensed bank within the Sultanate.

(g) Any act undertaken or committed in contravention of Article 57 shall be construed as null and void. The Board of Governors shall have the power to take appropriate action on such offenses including the right to order the immediate reversal of ownership of the shares.

  1. What are the most frequent type of enforcement actions taken in this jurisdiction?
Among the available enforcement actions available to the CBO, statutory notices and decision making, financial penalties, suspensions and restrictions are the common enforcement actions CBO uses to ensure compliance by the banks.

  1. What are the rights and duties of an individual who controls a bank either as a director or for a business which owns a bank in this jurisdiction?
Individuals or entities who are in control of a bank, either as a director or for a business which owns the bank, are required to comply with the conditions of license granted by the CBO, the BL along with all circulars, notices and Rules of CBO and thus, such individuals and entities have many reporting obligations under the CBO regime, particularly, compliance with antimony laundering, terrorism financing and illegal organisation rules and regulations.

  1. Who can be legally liable if a bank fails?
As a general principle, bank personnel do not incur any liability on a bank’s failure under the law of Oman. However, directors, officers, managers, employees of a bank owe duty of care as per Article 75(a) of the BL and they will be personally liable if they commit any illegality or be negligent in performance of their duties. The article states that each director, officer, manager and employee of a licensed bank shall be personally liable for any losses or damages suffered by the bank as a result of his fraudulent or wilfully negligent performance of duties, or his failure to act as a reasonable and prudent person under the circumstances.

  1. Are there any taxes levied over common banking services?
Generally, interest or margin earned on a financial service is treated as VAT exempt in Oman. What this means is that when one repays a loan in instalments, the interest included in a loan instalment would be VAT exempt. The portion of the principal being repaid will also be outside the scope of VAT. Another example of margin income is when a currency exchange house makes profits by buying and selling currency on spot rates and does not charge any fee separately. In such a scenario the exchange house would not charge any VAT as the implicit ‘profit’ earned by it would be treated as VAT exempt. In the same way, premiums charged for general insurances such as health insurance, motor insurance, fire insurance are also subject to VAT, although life insurance (as a saving product) is VAT exempt.

However, explicit fees charged by financial service providers have been made subject to VAT. Charges such as: annual debit card fees; cheque-book issuance fees; international remittance fees; annual safety deposit locker fees; and loan processing fees are subject to VAT. When it comes to trade finance services availed by businesses, charges including acceptance fees; bill negotiation fees; underwriting fees; BG issuance fees; and LC opening fees are subject to VAT.

Shariah-compliant Islamic financial arrangements should attract the same VAT treatment as applicable to their non-Islamic counterparts, so that there is no distortion or difference in the tax treatment. Thus, profit earned under Islamic financial products should be VAT exempt and explicit application or processing fees charged would be subject to VAT. There are no other taxes levied over common banking services.

  1. What steps need to be taken by an individual or company which wishes to purchase a bank in this jurisdiction?
Article 57 of BL and Circular BM 1121 contain the details about reorganization and change in control of the licensed banks. Both the target bank and the transferee need to seek prior approval from CBO particularly when such transfer would result in change of more than 10% share. Any change in shareholding shall be subject to shareholding restrictions prescribed in Circular BM/REG/40/96. Moreover, CBO will seek to determine suitability of major shareholders including beneficial owners and others who may exert influence on the bank. Sources of initial capital and ability of shareholders to provide additional financial support (when needed), expertise and integrity as part of fit and proper criteria, relevant skills and experience and record, if any, of criminal activity or adverse regulatory judgments (making it unfit to hold important positions in banks) come under essential and additional criteria to go by.

  1. What constitutes having control over a bank and what are the implications of having this?
Neither BL nor any circular clearly defines what constitutes having control over a bank. However, it may be inferred from the reading the BL and the applicable circulars that owning more than 10% shares of a licensed bank by an individual or an entity or 25% by an incorporated entity or 35% by a joint stock company and its related party constitutes having control over the bank. Generally speaking, having control over a bank may entail imposition of fines or conditions by CBO as authorized person of a bank and may be subject to other legal consequences or proceedings on behalf of the bank.

  1. What are the main differences between banking regulation in this jurisdiction and other major jurisdictions such as the US and Europe?
The CBO, the nation’s central bank, has played tremendous role in promoting and maintaining monetary and financial stability in the Sultanate of Oman, as well as in fostering a sound and progressive banking and financial system in the country conducive to its sustained economic growth. CBO has always been on par with international banking standards and implements them in domestic banking sphere without any delay. CBO recently adopted Basel III regulations in Oman. Moreover, Royal Decree 34/2002 promulgated the Money Laundering Law, applicable, among others, to licensed banks and other financial institutions and Royal Decree 9/1995 promulgated the Law Regulating the Bank Deposit Insurance Scheme.

  1. Are there any special rules of client confidentiality and banking secrecy? If so, what is their impact?
As per Article 24 of BL, the CBO officials, employees, consultants etc. are under obligation not to disclose any information obtained in performance of their functions and any violation thereof would result in criminal liability under the Penal Law of Oman. The same applies to any former CBO personnel as well. As per Article 70 of BL, no licensed bank, nor any director, officer, manager or employee of such bank, shall disclose any information relating to any customer of the bank except when such disclosure is required under the laws of the Sultanate and as instructed by the Central Bank. In any case a licensed bank should inform its customer promptly of such disclosure. Except as provided by Article 70 of BL, disclosure of information relating to any customer of a licensed bank shall be made only with the consent of such person, provided, however that a customer of a licensed bank may give general consent to use of banker’s advisements related to his banking business.

  1. What is the typical time scale for becoming registered to provide banking services in this jurisdiction?
As per Article 53 of BL, any person desiring to do banking business in Oman shall submit an application for a banking license to the CBO along with other documents stated in the Article. Upon submission of all the required documents to the satisfaction of the CBO, it will notify the applicant about the completion of the application. As per Article 54 of BL, CBO shall, within 120 days following the notification to the application as to the completion of his application for banking license, review and approve the application if the applicant meets all the requirements. If the CBO disapproves the application, it shall give the basis for its determination. Failure to approve or disapprove an application for banking license within 120 days from the date of notification as to the completion of application shall constitute a disapproval of the application. Similar time scale applies to applications for Islamic domestic banking license, however, for authorization of a branch office or Islamic window CBO shall takes its decision within 90 days instead of 120 days as per Article 4.5 of IBRF.

  1. What is the typical time scale for registration of a change of ownership in this jurisdiction?
Same as above.

  1. Are there any special rules on banking set off?
No, there are no special rules on banking set off in Oman

  1. Are there any special rules on closure of a bank account?
In Oman, closure of a bank account is not difficult or complicated. Closing an account would require the account holder to visit the bank in person, the closure process would entail a notice for closure, cashing out the account fully, and filling out an account closure form with verification; and the bank will require the submission of all debit cards along with unused cheques to the bank. Once completed, your account should be closed within three to fifteen working days.

  1. What are the main rules on cheque issuing and bounced cheques?
Generally, in Oman banks issue cheque books current account holders only and opening current accounts requires a salary certificate among other requirements. In Oman it is a criminal offence if a cheque is returned by the bank pursuant to the Omani Penal Law (Royal Decree No. 7/2018). The general rule is that this offence is punishable by imprisonment for a period no less than a month and not exceeding (2) two years, and a fine no less than (100) one hundred Rial Omani and not exceeding (500) five hundred Rial Omani, as well as the civil remedies available to the creditor. Since 2018, bounced cheques for amounts of 200,000 AED or less are no longer punishable by detention in the Emirate of Dubai, where the sentence will only be a fine.

Recently, Oman has passed the Law on the Simplification of Litigation Procedures (Royal Decree 125/2020), it applies to cheque related crimes as well in a fast-track process, unless any other crimes are not involved. Article 23 provides that the Misdemeanour Court must issue its judgement within 30-days from the date of the case's referral unless it is suspected that the cheque is forged or stolen. Again, the 30-day period can be extended to no more than 60-days if the circumstances require. There is a possibility of appeal for anyone convicted through this route.

  1. What are the main rules on provision of safe deposits by banks?
With respect to the safe deposit lockers, there are no clear guideline in Oman and as such CBO does not regulate or prescribe any policies regarding the lockers services. Some private banks provide safe deposit lockers services for a fee to its clients and each bank individually determines how they will operate this service.

  1. What are the main rules on the provision of letters of credit, promissory notes or bills of exchange by banks?
Laws relating to letters of credit, promissory notes or bills of exchange by banks are found in the Law of Commerce promulgated by Royal Decree No. 55/90. The Law of Commerce treats all these instruments similarly. A documentary credit, under the Law of Commerce, is a contract whereby the bank (the issuing bank) undertakes to open credit at the request of one of its customers (the applicant/buyer). The consideration is set for a certain amount and a specified period, in favour of another person (the beneficiary/seller), secured by documents which represent the goods that have been shipped or are being prepared for shipment (Article 377).

Under the Law of Commerce, documentary credits may be either revocable or irrevocable (Article 380). In the case of a revocable documentary credit, the bank may, at any time, amend or cancel the documentary credit on its own initiative or at the request of the buyer and without incurring any liability towards the beneficiary (Article 381). An irrevocable documentary credit constitutes a categorical undertaking by the bank which is conclusive and direct in relation to the beneficiary, provided the conditions therein are complied with (Article 382). An irrevocable documentary credit may not be cancelled or amended save by agreement of all the parties.

This Q&A was originally published for BSA in Lexis Middle Eastand can be downloaded here:Lexis Nexis: Oman Banking 2021

Contacts:

Arsalan Tariq Partner, Oman
arsalan.tariq@bsabh.com

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