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New SME Market Conduct Regulation

In late January 2021, the Small to Medium-Sized Enterprises (SME) Market Conduct Regulation (“Regulation”) was circulated to all banks and finance companies licensed by the Central Bank in the UAE (“Financial Institutions”). It comes as the UAE seeks to improve and enhance the financial services received by small and medium-sized enterprises (“SMEs”) in the UAE, particularly through the promotion of proper market conduct. The objective of the Regulation is to create a standardized culture in licensed Financial Institutions in instances where SME customers are dealt with.

The Regulation entails a set of specific objectives to establish a standard for financial business and market. A portion of the changes are more minute as it mandates further monitoring and oversight responsibilities for the board and/or senior management of a Financial Institution. The more active changes are as follows:
  • duty to disclose relevant information to SME customers and maintain transparency throughout all stages of the relationship;
  • upholding an ethical standard in the business activities done with SME customers, avoiding conflicts of interest as well as further instructions on how to open accounts for SME’s;
  • conducting responsible financing practice in relation to the services (charging unreasonable fees, providing credit to customers that are unable to repay or did not request amongst other things);
  • formation of an independent complaint management to receive grievances and resolve issues encountered by SME customers;
  • finally, the regulation emphasizes on the need for strict implementation of Shari’ah for Islamic Financial Institutions.
The Regulation very much sets a very open and transparent bank-customer relationship for Financial Institutions and its SME customers. It is now a duty for Financial Institutions to disclose necessary information insofar that it is legal. This is extremely helpful for the confidence and trust of SME’s as they would be provided with crucial information every step of the way.

The Regulation also instructs Financial Institutions to conduct themselves responsibly through accuracy, honesty and ethical behavior when dealing with SME customers. Furthermore, Financial Institutions are to ensure that potential conflicts of interest are avoided and must perform due diligence appropriately. Another noteworthy change would be the procedure to open accounts for SME’s, this seeks to streamline the differences and set a clear standardized process for Financial Institutions in this regard.

A more significant mandate from the Regulation would be the establishment of an independent complaint management solely for SME customers. Optimistically, such a management may significantly improve how a Financial Institution handles their SME customers.

The Regulation does not necessarily propose or set revolutionary measures for UAE Financial Institutions however it seeks to strengthen the market conduct, governance and oversight of these institutions in order to provide services to SME’s much more efficiently and productively.

These policies set out by the Regulation would ensure that a Financial Institution would not only have the utmost ethical standard and potentially customer satisfaction but improve administration of the organization as well and optimize SME’s access to sound and supportive banking and financing products and services.

Authored by Rima Mrad, and Mohamed Iqhwan.
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