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UAE central bank revises rules for selling life insurance and investment

By on June 23, 2021 0

Insurance and investment clients in the UAE benefit from a more transparent and protected regime after the UAE central bank issued guidelines on fees, charges and commissions levied by banks and financial companies offering savings and investment products and products without guaranteed capital.

The central bank issued a circular on June 13, 2021 to all financial institutions operating in the United Arab Emirates that offer conventional structured life insurance and takaful investment and savings products.

The circular states that banks and financial companies must obtain an “Approved Financial Institution” (LFI) license and can only resume the sale of these products after obtaining a letter of no objection from the central bank.


This circular follows an earlier notification to banks and finance companies in May 2017 directing them to stop offering savings and investment products and products without guaranteed capital until the central bank publishes a governance policy on the issuance of these products.

With this, banks and financial companies offer savings and investment products and products without guaranteed capital, said Anand Singh, senior partner in the insurance and reinsurance practice of the law firm BSA Ahmad Bin. Hezeem & Associates, Dubai.

Singh clarified that, as a next step towards life insurance regulation capping aggregate commissions payable to intermediaries, this circular requires that all fees, charges, commissions and expenses be disclosed to clients.

Considering the commission levels on bancassurance activities, once disclosed to clients, this will undoubtedly lead to more clients leaving banks in search of better value for money, he said.

The circular states that the regulations are applicable when an LFI offers such products, which include the Consumer Protection Regulation and Consumer Protection Standards issued by the central bank in 2021, in addition to previous instructions issued by the Insurance Authority.

Several additional requirements are suggested by the umbrella bank, according to which when an LFI offers investment products, they should be classified under three headings: disclosure and transparency, suitability and adequacy assessment, and institutional oversight.

Singh said the mandatory requirement to conduct a fit-and-fit assessment for each client is a welcome development.

“However, the condition that variable compensation be deferred for six months after the transaction will move ACIs further away from an already bleeding market,” he said.

Full transparency

BIAs are required to declare to the client in a simple format (in English and Arabic) the fees, charges and commissions that will be levied on the client, at the start and during the period of coverage, including the charges applicable to the withdrawal and to the ramification of such a withdrawal.

“The LFI must get each client’s signature on a written warning that they understand the risk and are aware of all fees, charges, commissions and expenses,” the circular said.

Finance companies and banks are required to obtain a new disclaimer at least 60 days before changing the terms of products already offered by the BIA.

The illustrations of the benefits should indicate how the premiums paid will be used with a percentage breakdown of fees, commissions and charges for each of the parties involved, i.e. bank, broker and insurance company.

In addition, an independent LFI team should perform a suitability and suitability assessment for each client based on income, investment experience, knowledge and net worth, to whom the products are proposed, and the client must certify by signature that the assessment of suitability and adequacy was performed.

“Each of these products must be reviewed and approved by an internal product approval committee, which will include risk management and compliance. Likewise, when it is offered by a takaful operator (Islamic insurance), the approval of the internal committee for the supervision of the Sharia of the LFI is required as well as a control of the respect of the Sharia ”, stipulates the circular.

“Any variable compensation paid to employees offering the products must be deferred for a minimum period of six months after the completion of the transaction,” the circular said.

The consumer first

The central bank has also issued consumer protection regulations and consumer protection standards that require increased disclosure and transparency when selling credit life insurance policies.

“Such regulations definitely set a high benchmark for the entire life insurance and investment market in the UAE. With the consumer benefits at the forefront of these regulations, they will certainly help the UAE achieve a gold standard in terms of the investment and life insurance market, ”Singh said.