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Revised Central Bank Guidance regarding Saving and Investment Insurance

On 13 June 2021 the UAE Central Bank issued a circular with reference no. CBUAE/BSD/N/2021/3148 (“the Circular”) addressed to all financial institutions operating in the UAE, offering structured conventional life insurance and takaful investment and saving products (“the Products”).

The Circular refers to Central Bank’s Circular of May 2017 which was addressed to banks and financial institutions and which stopped such entities from offering savings and investment and non-capital guaranteed products until the Central Bank issued a governance policy around the issuance of such products. The Circular now provides that subject to a Licensed Financial Institution (“LFI”) fulfilling the requirements laid down by the Central Bank, and after having obtained a no objection letter from the Central Bank, these institutions can resume selling such Products.

The Circular lists the regulations that are applicable when a LFI is offering such Products, which include the Consumer Protection Regulation and the Consumer Protection Standards issued by the Central Bank in 2021, in addition to the previous directions issued by the Insurance Authority. The Circular provides several additional requirements whichnow apply when an LFI is offering the Products. Such requirements are categorized under three categories:
  • Disclosure & Transparency;
  • Appropriateness; and
  • Suitability Assessment and Institutional Oversight.
The major changes brought forward by the Circular include:
  • The LFI must declare to the customer in simple format, in English and Arabic, the fees, charges and commission that will be levied on the customer, at inception and through the period of the cover, including charges applicable on withdrawal and ramification of such withdrawal. The LFI must obtain signature from each customer on a written disclaimer that they understand the risk and are aware of all fees, charges, commissions and expenses.
  • For any change to the terms of the Products already offered the LFI must obtain a new disclaimer atleast 60 days prior to such change.
  • The Benefit Illustrations must indicate how premium paid will be used with % allocation for fees, commission and charges for each of the parties involved, i.e. the bank, broker and insurance company.
  • An independent team at the LFI must carry out appropriateness and suitability assessment for each customer based on income, investment experience, knowledge and net worth, to whom the Products are offered, and the customer must attest by signature that the appropriateness and suitability assessment was performed
  • Each such product must be reviewed and approved by an internal product approval committee, that shall comprise of risk management, compliance. Similarly, when being offered by a Takaful operator, the approval of Internal Sharia’ah Supervision Committee of the LFI is required along with monitoring of Sharia’ah compliance.
  • Any variable compensation that is paid to employees offering the Products must be deferred for a minimum period of 6 months after the transaction has occurred.
The Central Bank also recently issued the Consumer Protection Regulation and the Consumer Protection Standards which set out the restrictions around the manner in which credit life policies are currently sold, as well as an increased disclosure and transparency requirement. Such regulations are instrumental in setting a high benchmark for the overall life insurance and investment market in the UAE, and with consumer benefit at the forefront of these regulations, they will certainly assist in the UAE's ambitions of attaining a gold standard in terms of investment and life insurance market.

To discuss these changes or for further information, please contact:

Simon Isgar Partner, Insurance T. +971 4 528 555 simon.isgar@bsabh.com

Anand Singh Senior Associate, Insurance T. +971 4 528 5555 anand.singh@bsabh.com
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