The UAE’s New Banking Law: Transforming the Financial Landscape Through Innovation and Oversight

The UAE has taken a significant step in reshaping its financial regulatory framework with the enactment of Federal Decree Law No. (6) of 2025 Regarding the Central Bank, Regulation of Financial Institutions and Activities, and Insurance Business (“New Banking Law”). Officially issued on 8 September 2025, published in the Official Gazette on 15 September, and effective from 16 September, the law replaces the 2018 Central Bank Law and the 2023 Insurance Law.

This new legislation consolidates supervision of banks, financial institutions, and (re)insurers under the Central Bank of the UAE (CBUAE), marking a decisive move toward unified prudential and conduct regulation. In doing so, it introduces two landmark developments:

1. A comprehensive early intervention and resolution regime enabling proactive oversight of financial institutions.

2. A digital money and payments framework giving statutory recognition to the Digital Dirham within the broader Central Bank Digital Currency (CBDC) initiative, part of the UAE’s ambitious Financial Infrastructure Transformation (FIT) Programme.

   
   

Strengthening Stability: From Recovery to Resolution

One of the most notable advancements under the New Banking Law is the CBUAE’s expanded authority to act early when financial institutions show signs of distress. Building on the 2023 Recovery Planning Regulation, the law grants the CBUAE full powers across the entire recovery and resolution process.

Key intervention rights include:

• Requiring recovery measures and capital or liquidity enhancements

• Restructuring management or mandating mergers and acquisitions

• Appointing resolution administrators

• Transferring or selling assets and liabilities without the need for shareholder or creditor consent

• Establishing bridge institutions and asset management vehicles

• Enforcing bail in measures, moratoria, and restrictions on secured enforcement

This represents a major evolution from the previous framework. The CBUAE now serves as the State Resolution Authority, empowered to deploy internationally aligned tools to preserve systemic stability and protect critical financial functions.

Alignment with Global Standards

By codifying detailed powers for recovery and resolution, the UAE has positioned its financial framework on par with international best practices. The law introduces concepts such as statutory bail in, creditor hierarchy, and settlement finality, ensuring the UAE’s framework functions comparably to those in advanced jurisdictions.

Forthcoming CBUAE implementing regulations are expected to clarify additional safeguards, including valuation standards, no creditor worse off protections, and loss absorbing capacity metrics.

Interaction with the UAE Bankruptcy Law

The UAE Bankruptcy Law (Law No. 51 of 2023) explicitly excludes licensed financial institutions and insurers from its scope when specific sectoral regulations apply. The new banking framework now fills that legislative gap, granting the CBUAE direct authority over resolution procedures for licensed financial institutions (LFIs).

While court supervised liquidation may still occur, it will generally be initiated or coordinated by the CBUAE, ensuring alignment with financial stability objectives. Further interpretation of the interplay between the New Banking Law and the bankruptcy regime is anticipated in upcoming regulatory guidance.

The Digital Dirham and the Future of Payments

The New Banking Law reinforces the CBUAE’s exclusive authority over payment systems and digital financial services, cementing the Dirham, physical or digital, as legal tender. By formally defining “currency” to include the Digital Dirham, the law eliminates previous uncertainty surrounding Central Bank Digital Currencies (CBDCs).

In parallel, “virtual assets” are distinctly classified and brought within the regulatory perimeter when used in licensed payment services, ensuring clarity in how digital money and crypto related instruments are governed within the UAE.

Other Key Developments

Beyond the headline reforms, the law introduces several important provisions aimed at enhancing governance, consumer protection, and systemic resilience:

• Designated Functions and Governance: Establishes clear “fit and proper” criteria and grants the CBUAE power to disqualify unfit individuals from key roles.

• Complaints Resolution: Formalizes an independent complaints unit with judicial oversight, expanding the remit of the existing Sanadak system to encompass all licensed financial institutions.

• Compound Interest Ban: Reaffirms the prohibition on charging interest on accrued interest, protecting borrowers from compounding debt.

• Deposit Protection Schemes: Provides for stabilization and protection funds to safeguard depositors and insured parties.

• Sustainability Mandate: Embeds ESG (Environmental, Social, and Governance) principles into the CBUAE’s regulatory mission.

• Islamic Finance: Strengthens the authority of the Higher Shari’a Authority (HSA), which now oversees Shari’a compliance and specialized audits across Islamic financial institutions.

• Financial Market Infrastructure (FMI): Expands regulation of settlement systems and introduces a licensing regime for FMI operators, ensuring finality of transfers and protection of collateral even during insolvency.

• Cross Border Recognition: Enables the CBUAE to recognize, reject, or partially accept foreign resolution actions, a key step toward global regulatory coordination.

• Penalties and Sanctions: Significantly increases fines, with institutional penalties reaching AED 1 billion and personal fines up to AED 5 million for authorized individuals, alongside enhanced enforcement powers.

Transition and Practical Impact

All regulations and circulars under the previous laws remain in force until explicitly replaced. Entities under CBUAE supervision have one year from the law’s effective date to align their practices with the new requirements.

Licensed financial institutions are advised to:

• Update recovery and resolution plans in light of the CBUAE’s enhanced powers

• Review lending, derivatives, and treasury documentation for compliance with the new legal framework

• Reassess governance structures to meet the revised “fit and proper” standards

• Evaluate cross border operations, particularly for foreign branches and recognition of foreign resolution actions

Final Thoughts

The New Banking Law represents more than a legislative update; it is a cornerstone of the UAE’s broader strategy to modernize its financial sector and strengthen regulatory resilience. By integrating digital innovation, robust oversight, and international alignment, the UAE reinforces its position as a global financial hub committed to transparency, stability, and technological advancement.