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Regulatory Requirements for Financial Institutions in Oman: A Guide
In a country where banking plays a vital role in economic development, financial institutions in Oman must operate within a strict regulatory framework to maintain stability and trust. The Sultanate of Oman has established laws such as the Commercial Law and Commercial Companies Law, which provide the foundation for the sector.
Banking Laws and Regulations
The Banking Law and Capital Market Law structure establishments for banking organizations and capital market-related foundations, while bank-related requirements are guided by regulations issued by the Central Bank of Oman. The law requires banks to maintain a high level of capital adequacy, liquidity, and risk management to ensure stability in the financial system.
Objectives of the Oman Banking Law
- Promotion of banking development: To ensure the maintenance of financial stability and contribution to industrial, economic, and commercial growth.
- Enhancing international position: To empower the Omani Central Bank for issuance of currency and maintenance of the domestic and foreign currency value.
- Supervision of banks: For advising the government of Oman and international economic affairs.
Powers of the Board of Governors
- Establishment of monetary policy: The Board is authorized to establish an effective monetary policy for the country.
- Examination of bank accounts: Examining the accounts, records, books, and any other affairs of the bank.
- Reviewing bank applications: Reviewing reports and bank applications for requests to establish branches and taking actions in the event suitable supervision and regulations are concerned.
Regulatory Framework of the Oman Central Bank
With the adoption of IFRS with effect from January 1, 2019, banks in Oman are under an obligation to comply with other established laws of the country. The Islamic banking entities will also be governed by a remote Islamic banking regulatory framework.
Oman’s Islamic Banking
The Islamic banking system in Oman is relatively younger compared to other jurisdictions. This system was launched in 2013 when the Central Bank of Oman gave license to the first two Sharia-compliant banks, Al Izz Islamic Bank and Bank Nizwa.
New Regulations
To facilitate the development of the Islamic banking segment, the Central Bank of Oman is working towards creating liquidity management tools that are sharia-compliant deposits and repositioning for Islamic banking entities. The additional regulatory initiative is the deposit insurance scheme introduced for the banking segment along with takaful, which is based on Islamic insurance principles.
Conclusion
The Omani banking sector is highly regulated, which has undoubtedly helped maintain reliability despite economic slumps due to sudden falls in global energy prices. New regulatory requirements consolidate the industry’s stability. However, it is an essential initiative that improvements in oil prices are intended to reinforce liquidity in the banking and finance system.
In the meantime, technological advancements and pressure from concerned authorities drive financial inclusion. The banking system is set to develop rapidly and further increase its lending share by moving towards reinforcing the sector via liquidity-management tools and proposed takaful insurance scheme.