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Regulatory Alert: Escrow Accounts Mandated

Regulatory Alert: Escrow Accounts Mandated for Insurance Agents & Brokers, & TPAs, UAE  

The United Arab Emirates Central Bank (CBUAE) have issued Notice No. CBUAE/BSD/2022/4708, dated 22 November 2022 in respect of “Activating the Requirements of Escrow Account for Funds & Premiums of Insurance Companies” (the “Notice”).

What does this mean in real terms for the industry.
All UAE licensed and authorized insurance brokers, agents and Health Insurance Third Party Administrators must open a dedicated Escrow account with UAE licensed and authorized banks to hold insurance monies (Client Funds) and enter into separate escrow agreements with each of its insurer clients.

Escrow is defined as “a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled. In terms of an “Escrow Account”, this is a form of a segregated account opened by a third party (the escrow agent) for the purposes of holding cash/assets on behalf of two or more contracting parties until certain agreed contractual conditions for release of the funds from the account have been met.

The intent behind this requirement is to offer transparency of insurance funds and protection to policyholders, which is a welcome move from the regulator, CBUAE. Many insurance brokers will already have in place insurance broker accounts (IBA), debtors, cash, and creditors accounts to protect client assets and monies. However, they will be required to open a dedicated Escrow account in compliance with the regulatory framework.

The Notice obligates the entity to ensure an escrow account is exclusively used for deposit of premium and/or insurance funds, payment of dues to insurance companies, and payment of dues from the insurance companies to third parties. For every one escrow account, a supplementary escrow accounts can be established on the basis that each of the escrow account is separated as per the respective escrow account agreement signed.

Those entities that must comply with the Notice must do so within ten (10) working days from the day of the notice, which was on or before 2nd December 2022.

Practical steps
We understand that the Banks cannot presently accommodate insurance escrow accounts and there is no regulatory framework for them to do so at present. Nonetheless, we would advise all entities to have in place escrow agreements with each of its insurer clients as a starting point and to have their current insurer monies audited externally for transparency reasons.

Regulating escrow accounts have been key in controlling any attempt and/or acts of money laundering and any suspicious acts that can potentially be deemed as money laundering. Thus, the new Notice requirement is important and must be carefully followed.

BSA can assist with the preparation and implementation of escrow agreements and would be delighted to assist those entities where needed.

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