The banking business is one of the Relevant Activities that fall under the scope of Economic Substance Regulations. A banking business is defined as a business that accepts funds that can be repaid or withdrawn, gives advances and loans, and makes investments by using these funds. ESR for Banking Business means that the banks would be licensed to perform these services in the UAE under the relevant licensing authorities. Such banks in the UAE that are given the license for doing banking business are termed as Commercial Banks or some similar category that reflects the business as licensed.
Activities of a Banking Business
Following are the CIGAs (Core Income Generating Activities) of a banking business according to the Economic Substance Regulations;
- Granting the clients with loans and other financial help and investing or lending the funds or deposits of the clients.
- Dealing with the risks related to interests of business, currency, and credit. The risk management activities performed in the banking business ensure the protection of the capital base and administer the cost of deposits.
- The licensee takes offsetting and opposing positions for the attenuation of several risks.
- Banking businesses undertake the management of the capital and compose reports for the authorities and investors who regulate and supervise these banking businesses.
- Banking business based on ESR is extremely regulated and reporting is done constantly to the supervising authorities.
- All the activities of banking business, management, reporting, and control are supposed to be undertaken within the UAE.
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Requirements for Banking Business
Cabinet of Ministers Resolution no. 57 places the following requirements of ESR for banking business;
- The state in which the banking business performs its activities will always be the UAE.
- The term banking business only refers to a business that accepts funds that can be repaid or withdrawn, gives advances and loans, and makes investments by using these funds.
- The business days for performing banking activities start from Sunday up to Thursday. No banking activities are allowed on weekends and UAE official holidays.
- In the field of banking business, the central bank of the country is the Central Bank of UAE.
- The Ministry of Finance is the competent authority for all the banking businesses in the UAE.
- The documentation in the banking business is related to the relevant activities performed in the banking process, or for the purpose of keeping a record of activities under the legislation.
- Every entity that is related to the banking group as a licensee or exempted licensee is known as the connected person.
- Other than the Ministry of Finance which is the main competent authority, the foreign competent authority can also exist. A foreign authority may be nominated by the state under a treaty, agreement, or arrangement with the international authorities in order to acquire any data or information in relation to the enforcement of resolution of the Ministry.
ESR Test for Banking Business
According to Cabinet Resolution no. 57 of 2020, banking businesses fall under ESR and need ESR filing and ESR reporting. After the banking businesses file for ESR, they also need to pass the ESR Test. For this purpose, the relevant authority will examine data included by the business in the filing of ESR notification to check whether the business meets the requirements of ESR. The core income-generating activities mentioned above will be checked by the authority to make sure that the banking business is performing its activities and is showing an active presence in the economy of the UAE.
Also Read : ESR for Headquarter Business in UAE
Which Licensee is excluded by ESR for Banking Business?
A licensee that does not perform any function such as using funds for loans and investments, etc, and only plays the role of an advisor or manager would not be included in the banking business as per ESR. Also, the banking businesses that perform services such as currency exchange, money remittance, involve in purchasing or selling currencies, foreign and domestic bonds and stocks also don’t fall under the scope of banking business according to ESR.
Can Multiple Banking Businesses File a Single ESR Notification?
No, the UAE ESR requires separate filing and reporting for different banking businesses. It is possible that different banking businesses consolidate to make the process of accounting easy but it still requires separate filing and reporting for each banking business of a consolidated group. Each business is responsible for its own banking activities that are evaluated by the authority at the time of ESR filing and testing.
Choose the Best Services
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Bola Olaoye is a Legal Senior Associate and holds an LLB from Adekunle Ajasin University as well as a Bar Certificate from the Council of Legal Education. With experience spanning 14 years, she knows the ins and outs of UAE’s laws and practices and has helped provide clear and concise guidance to clients on the appropriate law-abiding measures to be taken concerning Economic Substance Regulations (ESR).