Developments in Claims against Financial Institutions in the Middle East

The UAE and other countries in the Middle East have made great strides in recent years to promote the region as an excellent and safe place to do business.

With this push, however, comes the need to align more with other global financial centres and therefore regulation is increasing, and with this comes more risk to Financial Institution and their boards.

There are two recent matters which highlight the increasing regulation in the UAE and the risks this poses to FIs and their insurers.

The transparency and integrity of the insurance sector and the UAE financial system is of paramount importance as the UAE continues to bring its regulatory functions in line with the rest of the world as is befitting its status as a global commercial centre. A facet of this drive is a greater scrutiny on regulation and Regulators in the region becoming far more dynamic in taking action when there are perceived abuses.

In order to protect and maintain this integrity, the UAE Central Bank (“CBUAE”) in August 2024 took action against an insurer and an insurance broker for regulatory violations which may also have significant impacts in the future.

First, on 12 August 2024, the CBUAE imposed an administrative sanction on an insurance firm after an investigation revealed an insurer was in breach of the “Guidance on Personal Data” (“Guidance”).

The Guidance regulates how client data are collected for insurance policies.

As a result, the CBUAE issued a warning and directed the insurer to refrain from such activity.

Secondly, the CBUAE revoked the license of a Dubai-based insurance broker due to the broker’s weak compliance framework and failure to meet regulatory obligations.

By striking the company’s name off the Insurance Brokers Register, pursuant to Article 22 (2) of the Board of Directors Resolution No.15 of 2013 Concerning Insurance Brokerage Regulations, the CBUAE has sent a stern message that all licensed entities must align their processes with compliance requirements in order to maintain industry standards.

Both actions come not long after the CBUAE imposed a financial sanction of AED 1.2 million on an insurance company operating in Abu Dhabi for its deficiencies in its anti-money laundering procedures and combating the financing of terrorism policies and procedures.

These sanctions should serve as a wake-up call for insurers and brokers operating in the UAE, and all should review and enhance their policies and procedures to prevent similar action being taken.

These actions align with the broader trend of increased regulation in the region, following the release of the New Insurance Law in 2023, and demonstrate the CBUAE’s growing confidence in its ability to enforce compliance.

This was emphasised once again more recently (in fact, last week) five banks and two insurance companies operating in the UAE have been penalised for non-compliance with tax rules, the CBUAE announced on 25 March 2025.

The CBUAE levied fines totalling AED 2,621,000 (approximately £500,000) on the banks and insurance companies for failing to report procedures required by the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) guidelines.

The sanctions were imposed due to the institutions’ failure to meet compliance standards, particularly in relation to due diligence and the accuracy of financial reporting, despite the CBUAE granting all licensed financial institutions time to comply with the new guidelines.

What does this mean for Insurers?

These actions may also trigger relevant D&O policies that are in place as Emirati Regulators, in common with their counterparts in other countries around the world, are increasingly looking to pierce the corporate veil and bring actions against individuals, rather than the entities for which they work. This should also alert others in other industries beyond insurance and banks to ensure that they have sufficient and relevant cover in the event of similar action by the CBUAE or other regulators. We have previously spoken of the increasing global trend of regulation and these recent developments highlight this.

Insurers writing D&O and FI policies in the region will need to consider what questions are asked of their prospective insureds to determine whether they have sufficiently robust policies in place to stand up to regulatory scrutiny and it is likely that brokers in the region will need to delve deeper into their clients’ practices to ensure that sufficient cover is in place, particularly relating to extensions for regulatory investigations which are becoming more and more important in the current climate.

It is, of course, unlikely that fines and penalties levied are covered by relevant policies, however, the costs of any investigations might fall within the scope of cover, meaning Insurers’ exposures are likely to increase.