New UAE financial regulations reshape bank and insurer remuneration policies

The Central Bank of the UAE (CBUAE) has introduced a new remuneration regulation that marks a significant shift in governance expectations for financial institutions operating in the country. For the first time, these rules apply not only to banks but also to insurance and reinsurance companies, expanding the scope of regulatory oversight.

A Shift Towards Prescriptive Governance

The regulation introduces a standalone, detailed framework that departs from the previously principles-based approach. According to Marie Chowdhry, a financial regulatory expert with Pinsent Masons in the UAE, "The CBUAE’s new remuneration regulation marks a significant escalation in supervisory expectations for UAE‑regulated financial institutions."

She elaborated, "By separating remuneration requirements from broader corporate governance rules and introducing a detailed, standalone framework, the regulator has made clear that remuneration is viewed as a core prudential and risk‑management issue rather than a purely HR function."

Governance expectations have been strengthened significantly. One of the key changes includes a mandatory independent review of remuneration frameworks at least every three years, with a summary required to be submitted to the CBUAE. Chowdhry noted that this reflects "an expectation of external challenge and objective scrutiny of remuneration design and effectiveness."

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Key Changes for Financial Institutions

Under the new regulations, financial institutions face several new requirements. These include limitations on severance payments, which must now be performance-linked, governed by internal policy limits, and cannot be awarded in cases of institutional failure caused by an individual. The introduction of detailed clawback mechanisms and the identification of material risk takers are also mandated.

Additionally, the regulations impose stricter governance at the board and committee levels. Leadership will now be subject to enhanced oversight obligations, including periodic independent reviews. Regulated entities are required to conduct a gap analysis within 180 days of the regulation’s effective date and achieve full compliance within 15 months.

Impacts on Insurance Firms

For insurance and reinsurance companies, this regulation represents a major adjustment. Previously governed by general governance standards, these firms will now need to overhaul their remuneration frameworks. This includes enhanced documentation, internal controls, and approval processes to meet compliance requirements.

The regulations also introduce specific rules for internal Shari’ah supervision committee members. Their compensation must now be fixed, insulated from financial performance or Shari’ah approval volumes, and reviewed at least every three years. Safeguards have been implemented to ensure independence and objectivity in remuneration decisions.

A Tool for Risk Management

Gregg Hammond, a financial services expert with Pinsent Masons in the UAE, highlighted the broader implications of the framework. "At its core, the regulation reframes remuneration as a risk management tool rather than merely an incentive mechanism", Hammond explained. By doing so, the CBUAE aims to promote sound decision-making and long-term value creation while discouraging excessive or short-term risk-taking.

However, the implementation timeline poses challenges. Hammond noted, "Financial institutions are now required to ensure that compensation structures promote sound decision-making and long-term value creation, explicitly discouraging excessive or short-term risk-taking. Importantly, the implementation timeline is ambitious. Financial institutions are expected to conduct a gap analysis within six months of the regulation’s effective date and achieve full compliance within 15 months."

He continued, "This compressed timeframe suggests that the Central Bank anticipates not incremental adjustments, but substantive changes to existing frameworks. For many institutions, the immediate challenge will lie not in understanding the regulation, but in operationalizing it, particularly where legacy compensation models, governance structures or data capabilities may not yet support the required level of alignment and oversight."

Conclusion

These regulations represent a clear directive from the CBUAE that remuneration is a central factor in fostering financial resilience and stability within the sector. By prioritizing governance and risk management, the UAE has set a new benchmark for regulatory expectations in its financial institutions, requiring substantive changes in how banks and insurers operate. As institutions navigate the tight timelines for compliance, this regulatory shift underscores the importance of embedding robust and transparent frameworks across the industry.

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