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Corporate Governance in UAE Takes a Giant Leap Forward with New Laws and Regulations

The United Arab Emirates (UAE) has introduced new laws and regulations aimed at enhancing corporate governance and compliance within the country. These changes are set to revolutionize the way companies operate, promoting good practices among public and private entities.

Key Changes in Corporate Governance

Commercial Companies Law

  • The new Commercial Companies Law came into effect on January 2, 2022.
  • The law repeals the old commercial companies law and provides a comprehensive framework for regulating different types of companies in the UAE.
  • Article 6 of the law requires the Ministry of Economy to issue corporate governance regulations applicable to various onshore companies.

Limited Liability Companies

  • Cabinet Decision No. 77 of 2022 concerns limited liability companies, including provisions related to governance and management.
  • A ministerial resolution is expected to provide a detailed corporate governance framework for limited liability companies.

Private Joint Stock Companies (PJSs)

  • Ministerial Resolution No. 228 of 2015 on Governance Controls and Corporate Discipline Standards applies to PJSs.
  • This regulation sets out requirements for a general framework regulating governance in PJSs.

Banks and Financial Institutions

  • Circular 2019/83, which sets out corporate governance regulations applicable to banks, is another key piece of legislation introduced.

Authorities Responsible for Enforcing Corporate Governance Compliance

The following authorities are responsible for enforcing corporate governance compliance:

  • Emirates Securities and Commodities Authority (ESCA)
  • Central Bank of the UAE
  • Department of Economic Development of the relevant Emirate

Promoting Good Corporate Governance Practices

Organizations such as the Hawkamah Institute for Corporate Governance, the Abu Dhabi Centre for Corporate Governance, and the GCC Board of Directors Institute are working to promote good corporate governance practices among public and private UAE companies.

Corporate Governance Rules

The Corporate Governance Rules cover:

  • Board composition
  • Committees
  • Remuneration of directors
  • Audits

Compliance with these rules is mandatory, and public companies cannot adopt a “comply or explain” approach. ESCA has the power to issue penalties for breach of the rules.

Private Joint Stock Companies

Private joint stock companies are subject to less strict corporate governance requirements than public joint stock companies. However, they must still comply with the CSR Regulation, which established a new corporate social responsibility regime in the UAE.

Corporate Social Responsibility (CSR)

The CSR Fund will coordinate and supervise CSR initiatives and contributions made by companies. An annual contribution to the fund is mandatory for all businesses within the scope of the CSR law. While social responsibility remains based on voluntary principles, filing a CSR return and listing on the platform is mandatory for all eligible companies.

Conclusion

These new laws and regulations are set to enhance corporate governance and compliance in the UAE, promoting good practices among public and private companies. As the country continues to develop its regulatory framework, it is likely that we will see further enhancements to corporate governance and compliance requirements.