GCC Quarterly Review - Q3 2019

Modernised governance rules for UAE public companies: New rules issued by the UAE Securities and Commodities Authority (SCA) enables greater use of technology to streamline governance procedures for UAE public joint stock companies (PJSCs) and enhance rules on insider trading, directors’ conflicts of interests and independence. Shareholders of PJSCs are now able to attend and vote in general meetings electronically. This should make the governance of PJSCs easier and enable quicker decision-making, as shareholders no longer need to attend and vote in person at meetings. Scheduling a meeting that all shareholders can attend can be challenging, especially if shareholders live or work outside the UAE, or have other commitments which mean they need to be elsewhere. In most cases, PJSCs will now be able to call general meetings using text messages or emails to their shareholders (rather than using registered mail). PJSCs will need to amend their Articles of Association to be able to take advantage of the new procedures and obtain consent from shareholders to use e-voting. The new rules are set out in the SCA Resolution No. (03/RM) of 2019 amending Resolution No.(7/RM) of 2016 concerning Standards of Institutional Discipline and Governance in Public Joint Stock Companies.

Resolving conflicts of jurisdiction between Emirate courts in the UAE: A recent Federal Supreme Court judgment (No.2 of 2019) shines a light on the UAE approach to conflicts of jurisdiction between different courts in the same Emirate. The UAE has a multi-faceted court system, comprising a Federal Court system which applies in some of the Emirates and independent court systems in other Emirates (including Dubai and Abu Dhabi), separate court systems in the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) and several specialist tribunals. It can be a difficult and uncertain situation for parties to transactions who find themselves with concurrent proceedings in more than one court. While concurrent proceedings before different courts or tribunals on the same dispute should be rare, sometimes it does happen. The Federal Supreme Court generally handles conflicts of jurisdiction between local Emirate courts. However, in this case the Federal Supreme Court decided not to rule on an apparent conflict between an order of a special judicial committee in Dubai ratifying an arbitral award issued by the Dubai International Arbitration Centre (DIAC) and a judgment issued by the Dubai Court of Cassation regarding the same dispute. Instead, it delegated the matter to the Emirate courts in Dubai to resolve. This decision indicates that the senior courts in an Emirate should be able to deal with the resulting conflicts of jurisdiction, without needing to refer the determination to the Federal Supreme Court, which could lead to further costs and delays.

The UAE has introduced a range of reforms to modernise the regulatory framework underpinning the enforcement of contractual rights over the last few years, including the Federal Arbitration Law (Federal Law No.6 of 2018) and new regulations on the enforcement of foreign arbitral awards and judgments in UAE Cabinet Resolution No.57 of 2018 concerning the Executive Regulations of Federal Law No.11 of 1992 (read more). The Judicial Tribunal for the Dubai Courts and the DIFC Courts continues to have authority to rule on conflicts of jurisdiction and conflicts of judgments between those two courts.

Data protection modernisation and the internet of things in the UAE: The UAE Telecommunications Regulatory Authority (TRA) has reformed its approach to data protection with the introduction of a new Internet of Things (IoT) regulatory framework, including a new policy and procedures and new data protection rules. The new policy and procedures are in force (although only recently made publicly available) and compliance is now mandatory, with breaches subject to penalties.

The IoT is a catch-all phrase referring to the internet connectivity of everyday objects, encompassing a wide range of interconnecting information services (physical and virtual) including devices such as wearables, cars, smart home devices, security systems and robotics. These devices come with an increased ability to create, store and share new data. The TRA regulates the provision of IoT services in the UAE by individuals, companies or public authorities, who will need to comply with the new framework, whether they are located in the UAE and or outside of the UAE. Providers will need to register with the TRA and obtain a registration certificate. There are additional licensing requirements for some providers, for example, who provide “Soft SIMs” (which store data in a device), certain telecommunications equipment and IoT-specific connectivity. There are also additional requirements for critical IoT services (which, if it fails, may result in an adverse impact on the health of individuals, public convenience or safety or national security). New data protection provisions draw on international best practice (specifically the General Data Protection Regulation 2016/679 in the European Union (EU)), placing stricter obligations on those processing and controlling personal data (including collecting, storing and using personal data).

New committees to resolve insurance disputes in the UAE: The new decision of the UAE Insurance Authority provides for specialist committees to be established to resolve retail and commercial insurance disputes resulting from complaints by insured persons (or beneficiaries and other interested parties) against insurers. Disputes should be resolved quickly, within 15 days (which is extendable). Claimants can file claims and submit documents more easily, including by email. The parties can agree to resolve disputes by arbitration, instead of by committee. Decision No. 33 of 2019 relating to the regulation of Insurance Disputes Resolution Committees is made under the UAE Insurance Law (Federal Law No. 6 of 2007, as amended). The new regime is in force with effect from December (three months from its publication in the Official Gazette).

Latest news on smart courts in the UAE – JAFZ employment disputes: A new virtual smart court will handle employment dispute in the Jebel Ali Free Zone (JAFZ), following a new Memorandum of Understanding between JAFZ and the Dubai Courts. Cases can be heard remotely, enabling a more efficient process as the parties will not need to attend hearings at the Dubai Courts in person.

The smart court is not yet operational. The new smart court forms part of a wider initiative in the UAE to offer smart and electronic services to promote the resolution of disputes. For example, parties can access a range of Dubai Courts services online and via smartphone applications. The UAE courts plans to use electronic trials video-conferencing during court hearings. In the DIFC, parties can resolve some disputes in the DIFC Courts remotely using advanced video technology, while in the ADGM parties can manage cases remotely using the ADGM Court’s eCourt platform. The DIFC Courts have partnered with Smart Dubai in an initiative to develop the world’s first “Court of the Blockchain” (read more), and since 2017 have worked with the Dubai Future Foundation on the Courts of the Future Forum, a platform on which to build a hub for best practices among worldwide courts and tech pioneers.

DIFC data protection reform proposals: The DIFC is expected to update its data protection regime to more closely align with the General Data Protection Regulation (GDPR) in the EU, following a consultation which ended in August. The existing regime, set out in the DIFC Data Protection Law (Law No.1 of 2007) and related regulations, was aligned with the pre-GDPR EU regime. The proposed regime places stricter obligations on those processing personal data, reinforces individuals’ rights over their data and updates rules on when personal data can be transferred outside the DIFC. This proposed change would introduce updated, international best practice rules to the DIFC regime. It will be particularly helpful for businesses in the DIFC with international operations which are affected by the GDPR, as the regimes with which they must comply are even more similar. Read more here about the current DIFC regime in Linklaters Data Protected publication.

DFSA to tighten Professional Client rules: The Dubai Financial Services Authority (DFSA), which regulates financial services conducted in or from the DIFC, has consulted on revisions to the rules on the suitability assessment of financial products for “professional clients” by DFSA-Authorised Firms. The revisions proposed in Consultation Paper No.127 of 2019 in August draw on international suitability regimes, including the practices adopted in EU jurisdictions based on Markets in Financial Instruments Directive 2014 (MiFID II). In particular, the DFSA proposes to change the Conduct of Business (COB) Rules in the DFSA Rulebook to no longer permit a full waiver of the suitability assessment for Professional Clients but retain the flexibility for partial waivers. There should also be extended guidance surrounding the warnings provided to Professional Clients, ensuring that they are given appropriate and effective warning of the consequences of the firm undertaking a limited suitability assessment.

ADGM issues guidance on digital securities: The Financial Services Regulatory Authority (FSRA) of the ADGM is the first regulator in the region to introduce guidance on digital securities. The Guidance for Digital Securities Activity in the ADGM sets out the FSRA’s approach to the regulation of digital securities in the ADGM for both primary and secondary markets, including in relation to offers, listings and market infrastructure, including exchanges. Last year, the ADGM was the first jurisdiction in the Middle East region to launch a framework to regulate crypto asset activities, set out in the Financial Services and Markets Regulations 2015 and the FSRA’s Rulebook (read more). The guidance, issued under the Financial Services and Markets Regulations 2015, supplements the crypto asset regulatory regime and the FSRA's Guidance on Initial Coin/Token Offerings and Crypto Assets released in October 2017.

Saudi Arabia plans new IPO rules: New Prudential Rules are expected to be issued soon by the Saudi Arabian Capital Market’s Authority (CMA) to ensure CMA-authorised persons remain financially sound and have adequate capital requirements. The rules will regulate authorised persons, who are authorised to carry out the securities business activities of dealing, managing, custody, arranging and advising. Areas regulated by the new rules include capital base requirements, minimum capital requirements (comprising Tier 1 and Tier 2 capital calculated in accordance with the rules), minimum liquidity requirements (including rules on governance and oversight of liquidity risk), large and excess exposures, risk assessment (using the standardised approach for operational risk and a requirement to have in place Internal Capital Adequacy Assessment Process (ICAAP)), disclosure and reporting. The proposed rules draw on international best practice and standards, with the aim of enhancing the protection of investors and maintaining a fair and stable market. They are to be read in conjunction with the Capital Market Law (issued by Royal Decree No. M/30 dated 2/6/1424H, 31 July 2003) and implementing regulations.

Update on Saudi Arabia’s Competition Law: The new Competition Law has entered into force in Saudi Arabia in September, following the adoption of Royal Decree No. (M/75) of 1440H, 6 March 2019 in March (read more). Regulations to implement the Competition Law have also been published recently. The new regime regulates anti-competitive agreements, economic concentrations and abuse of a dominant position. The draft regulations require notification of a proposed “economic concentration” (such as a merger or an acquisition) to the General Authority for Competition (GAC) if the aggregate turnover of the parties to the economic concentration is SAR 100 million or more. Under the regulations, an establishment is deemed to have a dominant position if its share of the relevant market is 40 per cent. or more.

New procurement law for Saudi Arabia: A new Government Tenders and Procurement Law will apply to all Saudi Arabian government projects with effect from November. Cabinet Resolution No.649 of 1440 AH, Promulgating the Government Tender and Procurement Law Royal Decree No. (M/128) of 1440 AH, 16 July 2019 provides for more centralised tendering and procurement processes (including via an electronic portal) and contracting processes (for example, by using standard framework agreements). Other key provisions include new termination powers for the government, increases the maximum delay penalties to 20 per cent (up from 10 per cent) and the ability to refer disputes to arbitration (if approved by the Ministry of Finance). Alongside Vision 2030 initiatives, the new framework will support infrastructure development in the Kingdom.

Restrictions on foreign consultants in Saudi Arabia: Royal Order No. 624 dated 5/1/1441H, 2 September 219 sets out new restrictions on government engagements with foreign consultants. The Royal Order provides that the entry by government ministries and agencies into agreements for consultancy services should be limited to Saudi nationals and Saudi consulting establishments and companies. The provision of such services by foreign offices and companies must be limited to narrow circumstances in which the relevant expertise cannot be provided locally. The extent of the impact of the Royal Order remains to be seen as does the manner in which the exemption will be applied, but we expect a continued need for foreign expertise as the Kingdom pursues the objectives of Vision 2030.

Saudi Arabia’s new e-commerce law: A new e-commerce law (Royal Decree No. M/126 dated 07/11/1440H, 10 July 2019) will come into force in October. The law is designed to protect consumers by regulating e-commerce service providers located in Saudi Arabia and providers located outside of Saudi Arabia who offer goods and services to customers in the Kingdom. The law regulates issues such as minimum requirements for e-commerce websites, digital advertising, rights to terminate and cooling-off periods and protections on the use and retention of personal data. Implementing regulations are expected to be published and the Ministry of Commerce and Investment is to establish a committee to oversee the law and impose penalties, including warnings and fines.

Saudi Arabia and the UAE collaborate on financial intelligence: The UAE Financial Intelligence Unit and the Saudi Arabia Financial Intelligence Unit have signed a Memorandum of Understanding in August to work closely together to combat money laundering and financial terrorism. The strategic partnership is supported by robust anti-money laundering and terrorism offences legislation in both jurisdictions.

New laws to promote investment in Oman: A new law to promote foreign investment in Oman, issued under Royal Decree No.50 of 2019, should come into force in January 2020. The new regime allows foreign investors to invest in local companies incorporated in Oman which are engaged in activities, which are expected to be specified in future regulations. There is no upper limit on foreign investment in the law, indicating that it may be possible for foreign investors to own up to 100 per cent of the company, with the approval of the Ministry of Commerce and Industry. Where a foreign investor is seeking to invest in an Omani company, it will need to apply for a licence and register with the Ministry of Commerce and Industry. An economic viability study, approved by the Ministry, may also be required. Companies receiving foreign investment will be treated in the same was as companies owned by Omani nationals. They may be able to access real estate for a project under a long-term lease, benefit from protections from expropriation and tax incentives. Additional benefits may also be given to foreign investment projects established in the less developed regions of Oman. The move to attract foreign investment has been driven primarily by a desire to diversify and further develop the Omani economy and to increase employment opportunities. Easing restrictions on the level of foreign ownership of domestic companies is increasingly common across many jurisdictions in the Middle East. The UAE introduced major reforms in this area in 2018 (read more).

Oman introduces new bankruptcy regime: Oman has a stand-alone bankruptcy regime for the first time. Omani Royal Decree No.53 of 2019 modernises and streamlines the previous regime, which was found in various laws. Reorganisation and composition are rescue procedures available to debtors experiencing financial difficulties (provided they have two years trading history and no fraud has been committed). A bankruptcy regime is a procedure for insolvent debtors. The new procedures will be available in July 2020, at the end of a one-year period since the law’s publication in July. The bankruptcy law is part of a wave of reforms, including new laws on foreign investment (described above under Royal Decree No.50 of 2019), privatisation projects (Royal Decree No.52 of 2019) and public private partnerships (PPP) regime (Royal Decree No.52 of 2019), which aim to improve the investment environment in Oman.

New data protection regime in Bahrain: Bahrain’s new data protection law (Law No.30 of 2018) brings in modernised rules on the processing and protection of personal data, with effect from August. It places stricter obligations on businesses if they are processing and controlling personal data, reinforces individuals’ rights (which are broader than those under the GDPR in the EU), restricts transfers of personal data outside Bahrain and allows businesses to appoint a data protection supervisor. The law applies to businesses established in Bahrain and has extra-territorial effect on non-resident businesses who process data in Bahrain. A new authority, the Personal Data Protection Authority, will oversee the regime.

Bahrain approves cryptocurrency exchange: The Central Bank of Bahrain (CBB) has issued the first licence to a cryptocurrency exchange. Rain, a Bahrain-based cryptocurrency exchange and custodian, was awarded a Crypto-Asset Module (CRA) licence in July, having participated in the regulatory sandbox programme. This is the first time a cryptocurrency exchange has been licensed to buy, sell, and store cryptocurrency in the Middle East. As a CBB licensed entity, the exchange is subject to the CBB’s cryptocurrency regulations, including rules on governance, capital reserve requirements, cybersecurity requirements and risk management for cryptocurrencies as a new asset class. Global regulators are grappling with the complexities of regulating the novel characteristics of cryptocurrencies and crypto assets. Members the International Organization of Securities Commissions (IOSCO) have agreed to cooperate in developing internationally recognised and consistent standards of regulation, oversight and enforcement, and to enhance information exchange relating to crypto asset trading platforms, following a recent IOSCO report in May (read more). Read more about cryptocurrency developments in the region in our update earlier in 2019. You can read about developments in the fintech sector in our blog, FintechLinks.

New international rules on the enforcement of foreign judgments: The new 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters should simplify recognition and enforcement of judgments for court judgments amongst states who become party to it (known as “contracting states”) (read more). The Convention promises to make cross-border litigation of civil and commercial matters quicker, more predictable and reduce costs, in a similar way as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 does for arbitral awards. Broadly, if the grounds for enforcement are met, the Convention requires recognition and enforcement in any contracting state without a review of the merits of the case. The text of the Convention was finalised in July but does not have any legal effect until it is ratified by contracting states. To date, no state has yet ratified the Convention. The significance is that there is now a final text which states can choose to ratify/accept in future should they so wish. There is likely to be ongoing interest in monitoring its progress, particularly in the Middle East (including Saudi Arabia, which is a member of the Hague Convention) where cross-border enforcement can pose challenges.