As part of its ongoing efforts to introduce and maintain over the top regulatory framework, by way of Circular No. 14/2021, the UAE Central Bank has issued a new Outsourcing Regulation with accompanying Standards to regulate UAE financial institutions’ outsourcing endeavors in order to match international best practices adopted in the banking sector.
In particular, the Regulation endeavors to ensure that the banks are properly managing risks when outsourcing. To this end, the Outsourcing Regulation prescribes the minimum acceptable standards for outsourcing related risks while the Standards lay down the Central Bank’s supervisory expectations.
The Outsourcing Regulation and the Standards include:
- Enhanced governance and reporting requirements
- Minimum outsourcing requirements, including the obligations to maintain an updated and comprehensive register of all material and non-material outsourcing arrangements, to establish internal reporting and compliance policies and procedures; and to ensure that all outsourcing transactions are governed by forma; contracts
- Detailed data protection compliance obligations
- Restrictions on outsourcing outside the UAE
Furthermore, the Outsourcing Regulation makes it a mandatory requirement for UAE’s financial institutions to obtain a notice of no objection from the UAE Central Bank before outsourcing any material activity.
The UAE Central Bank can take supervisory action and sanction, as it deems appropriate, against violations of the Outsourcing Regulation and the Standards. Such supervisory actions and sanctions may include withdrawing, replacing or restricting the powers of the bank’s senior management or board members, providing for the interim management of the bank, imposition of fines, barring individuals from the UAE banking sector, or requiring a bank to terminate an outsourcing arrangement.
While the Outsourcing Regulation and the Standards have come into effect as of 15 July 2021, all outsourcing arrangements executed before this effective date are subject to a grace period ending on 31 December 2023.