Oman: Banking & Finance (2nd edition)

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This country-specific Q&A provides an overview to banking and finance laws and regulations that may occur in Oman.

This Q&A is part of the global guide to Banking & Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance-2nd-edition/

  1. What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?

    Pursuant to the Banking Law of Oman (issued by Royal Decree 114/2000 (as amended), the “Banking Law”), the Central Bank of Oman (the “CBO”), acting through its board of governors (the “Board”), has full authority to perform all acts required for the regulation, administration and supervision of banking busi-ness in Oman. The CBO’s powers are set out extensively and comprehensively in the Banking Law.

    Additionally, banks engaged in investment banking activities will be subject to the regulations issued by the Capital Market Authority (the “CMA”) pursuant to the Capital Market Authority Law (RD 80/1998, the “CMAL”) and the Executive Regulations of the CMAL as amended from time to time (the “Executive Regulations”).

  2. Which type of activities trigger the requirement of a banking license?

    In general, the conduct of any banking business in Oman requires that a licence be obtained from the CBO and provides sanctions (including fines and imprisonment) for persons who conduct such activities without the required licence. The term “banking business” is defined by the Banking Law and covers such activities as receiving deposits, opening accounts, the extension of credit, whether on a secured or unsecured basis, issuing guarantees, the sale and placement of bonds and similar instruments, the sale or exchange of currencies, investment management, factoring, trading in precious metals and such other activities as may be determined by the CBO as requiring a banking licence.

    An exception to this would be in the case of foreign banks with no licensed presence in Oman providing offshore banking services to customers in Oman, whether in the form of the advance of credit facilities to Omani borrowers or other banking services to Omani nationals outside of Oman, and these will not be seen to trigger the need for a banking licence in Oman.

    The marketing of foreign securities and foreign investment products in Oman is regulated by the CMA under the CMAL and the Executive Regulations. The term “securities” as defined in the CMAL includes “Shares and bonds issued by joint stock companies and the bonds issued by the Government and its Public Authorities, treasury bonds and bills and other securities negotiable in the Market”. Despite the apparent restricted scope of this definition, the CMA in practice regulates any kind of investment prod-ucts that are offered, marketed or sold in Oman (i.e. registered and unregistered funds).

  3. Does your regulatory regime know different licenses for different banking services?

    As mentioned in Question 2, the Banking Law is clear in its requirement that any person conducting any banking business must first obtain a licence from the CBO. The CBO issues licences to applicants that they may carry out banking business in Oman. As part of the application made by a person wishing to carry out banking business, that person must specify which kind of banking business such person in-tends to carry out following the CBO’s approval of the licence application. By way of example, this may be commercial or investment banking, lease financing, hire-purchase activities or the operation of money exchange centres. There are however separate forms depending on whether the applicant is a domestic applicant or an existing foreign bank applying to carry out banking business in Oman.

    The approval of a licence application and the consequent issuing of a licence by the CBO will be for the specific kinds of banking business that the person who made the application specified in that applica-tion. Indeed, the licence itself will state which kinds of banking business may be carried out by the per-son to whom the licence has been issued. The CBO further has the authority to approve applications in respect of Islamic banking business, whether as a stand-alone Islamic bank or as a window of an exist-ing conventional bank.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    A person is authorised to carry out that banking business, which the applicant has applied for in its ap-plication to the CBO and in respect of which a licence was then issued. If a person wishes to carry out any additional activities, they must be approved and licenced by the CBO to carry out those additional activities, i.e. through the issuance of an investment banking licence, hire purchase, lease financing li-cence or the operation of money exchange centres.

    In the case of a person wishing to carry out investment banking activities through an investment banking licence, further approvals may also need to be obtained from the CMA.

  5. Is there a “sandbox” or “license light” for specific activities?

    There is no such accommodation in Oman for persons wishing to engage in banking business in Oman and, as stated in Question 2, persons wishing to carry out any kind of banking business in Oman must obtain a licence from the CBO.

  6. Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?

    All lawful currency of Oman is issued by the CBO pursuant to the Banking Law. There are no policies or guidelines to regulate digital or cryptocurrencies issued by the CBO or otherwise. The CBO has in the past issued informal guidance that people wishing to transact in any way in crypto currencies should exercise caution when so doing.

    No person may establish or issue a crypto currency in Oman. Any person wishing to deal in a crypto currency in Oman for the account of others will need to be licensed by the CBO.

  7. What is the general application process for bank licenses and what is the average timing?

    The general application process for a licence to carry out banking business in Oman requires that the person wishing to carry out banking business in Oman makes an application for a licence to the CBO, together with all supporting documents and information as required by the Banking Law or the CBO. The form is as prescribed by Banking Circular of the CBO Number BM/REG/008/7/75-4-2.02, and this form covers all kinds of banking business that an applicant may intend to carry out (with the proviso noted in Question 2 in relation to domestic applicants and non-Omani existing bank applicants).

    The Board shall review each licence application and applicable supporting or incidental documentation to determine whether such application meets the requirements and objectives of the Banking Law, the commercial, financial and economic needs of Oman and such other factors as may be required by regu-lations issued by the CBO from time to time or other applicable law (all constituting the “Requirements”).

    The CBO must notify the applicant in writing that the licence application has been completed. Within 120 days of this notice, the Board must, if the application meets the Requirements, approve the application. If the Board determines that the application does not meet the Requirements, it must, within the same timeframe, notify the applicant, setting out the reasons for the Board’s determination. The Banking Law further states that failure by the Board to approve or disapprove an application with the 120 day timeframe specified in the Banking Law shall constitute a disapproval of the application.

  8. Is mere cross-border activity permissible? If yes, what are the requirements?

    Please refer to comments under Question 2.

    Additionally, the Banking Law states that only a local bank or the local branch of a foreign bank licensed by the CBO is allowed to market or promote itself as a banking business in Oman. That said, the Bank-ing Law permits a foreign bank to advertise itself in the local media (i.e. newspapers, television, radio) provided that such advertisements clearly establish that the foreign bank does not engage in banking business in Oman.

    The extent to which a foreign bank may be permitted to conduct adverting of its banking business in Oman is unclear. The Banking Law is limited to advertising by a foreign bank of its banking business conducted from outside of Oman.

    It is important to note that a foreign bank or financial institution must ensure that its advertising activities are not used for the purposes of promoting or marketing of securities within Oman. In particular, Circular 489 issued by the CBO requires banks and financial institutions to desist from advertising their services related to activities pertaining to investment or merchant banking unless prior CBO approval has been obtained. Similar prohibitions are also to be found in the CMAL with regards to the marketing, promo-tion, sale or distribution of foreign securities in Oman.

    Pursuant to the Executive Regulations, a person marketing foreign securities in Oman must ensure that it does so in accordance with applicable Omani law. This can be done either through a local distributor or on a cross-border basis directly. A local distributor must have the appropriate licences and that local distributor must also comply with a number of other requirements relating to the products being market-ed in Oman. The marketing of securities by a non-Omani person may also be conducted on a cross-border or “reach-in” basis and certain tolerated practices govern how this may be effected. All guidance on cross-border marketing constitutes informal guidance from the regulatory authorities and may not necessarily be relied on as being tolerated in the future.

  9. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    Omani joint stock companies may apply for a banking licence to carry out banking business. Further, an existing foreign bank that is regulated in one or more other jurisdictions by the relevant authority in those jurisdictions may apply to carry out banking business in Oman.

  10. What are the organizational requirements for banks, including with respect to corporate governance?

    The board of directors of a bank (the “BOD”) has, in accordance with the Commercial Companies Law (RD 4/1974, the “CCL”), the Banking Law and the CMAL, overall responsibility for the management of the bank, which will include, but not be limited to, the BOD being responsible for such matters as policy formulation, the supervision of major strategic and business initiatives, overseeing policy implementa-tion, ensuring compliance with applicable laws and regulations, ensuring proper and ethical behaviour, ensuring transparency and integrity in stakeholder reporting and for the oversight and supervision of senior management. The CBO has the right to veto any director elected or appointed for a bank.

    The management of a bank is required to render complete assistance to the BOD in respect of policy formulation, has responsibility for implementing BOD-approved policies, ensuring professionalism such that the bank achieves efficiently in accordance with BOD-approved policies, ensuring expertise for achieving the bank’s corporate goals, providing complete and authentic reports to the BOD, creating and maintaining a fair corporate image of the bank and assisting the BOD with ensuring proper and ethical behavior.

    The BOD is obliged to establish committees considered necessary by the BOD or where required by applicable law to enhance the corporate objectives of the bank. The number and nature of such commit-tees depends on many factors, including requirements of law, the size of the bank and its BOD, the na-ture and structure of the business areas of the bank (i.e. the various licensed activities undertaken by the bank) and its risk profile. The main committees would usually include the credit committee, the audit committee, the risk committee and the nomination and remuneration committee.

    The CEO or General Manager of a bank (the “CEO”) is required to be approved by the CBO and such CEO shall be accountable to the bank for proposing policies, evolving and adopting implementation strategies in respect of BOD-approved policies and initiating measures for short-term profit growth with-out sacrificing medium or long term profit and net worth enhancement potential. The CEO is expected to provide leadership by establishing style and spirit that enhances the image and reputation of the bank.

  11. Do any restrictions on remuneration policies apply?

    A remuneration committee must be established by the BOD and be comprised of, where appropriate, a majority of independent members. It may also include external advisors for consultation purposes. Its members should have sufficient knowledge, skills and experience required for making independent and objective policies and decisions on compensation and remuneration practices. It is the function of the BOD to approve and implement remuneration policies, as recommended by the remuneration committee. The BOD should also oversee any update or amendment to the compensation policies.

    Remuneration should be consistent with the risk profile and the bank’s overall performance, including taking into account indicators of profitability, liquidity, capital adequacy and operational performance. Employee compensation must be consistent with their performance and efforts to fulfill their responsibilities and the bank’s overall performance. The remuneration framework should take account of all officer and employee levels, to maintain a cohesive approach.

    All appropriate factors should be considered as part of the process of approving the bank’s compensa-tion framework (as well as individual remuneration packages) for the bank’s group as a whole such that total income or profit should not be the only performance parameter. The compensation policy should be based on objective performance parameters to evaluate and measure staff performance at all levels. The remuneration of management should be based on their performance and should be consistent with the bank’s long-term performance and policies. The remuneration of the BOD members shall be based on the performance of the bank and shall be determined in accordance with applicable laws.

    Banks should maintain transparency by disclosing all information about their compensation policies and practices in a clear and comprehensive way, whether in the bank’s financial statements or otherwise. Members of BOD compensation payments must be disclosed. Any large or unusual payouts should be described in detail if they form part of any officer’s or employee’s compensation package.

  12. Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    Oman has implemented Basel III requirements. The regulatory capital will consist of the sum of Tier 1 (“T1”) Capital: going-concern capital and Tier 2 (“T2”) Capital: gone-concern capital. The T1 Capital will consist of Common Equity Tier 1 capital (“CET 1”) and Additional Tier 1 (“AT1”). The minimum capital requirements for Omani banks are: a) CET1 must be at least 7.0 per cent. of risk weighted assets at all times, b) T1 Capital must be at least 9.0 per cent. of risk weighted assets at all times and c) Total Capital (T1 Capital plus T2 Capital) must be at least 12.0 per cent. of risk weighted assets at all times.

  13. Are there any requirements with respect to the leverage ratio?

    The CBO has followed BCBS guidelines in introducing a simple, transparent, non-risk based leverage ratio, in order to constrain build-up of leverage in the banking sector and reinforce risk based require-ments based on a “back-stop” measure. The leverage ratio of the banking sector was 13 per cent. at the end of 2017 as against the minimum Basel III requirement of 3 per cent.

  14. What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    Oman has implemented the Basel III liquidity requirements, including regarding LCR and NSFR. The CBO, as part of its strategic plan for financial sector regulation, has restricted liquidity mismatches to 15 per cent. of cumulative liabilities in both OMR and US$ for one year with the Liquidity Coverage Ratio Requirement to be achieved fully by 2019 and the standard for Net Stable Fund Ratio requirement effec-tive from 2018 with banks being required to maintain a longer-term NSFR at 100 per cent.

  15. Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?

    All banks are required to prepare balance sheet and profit and loss accounts in accordance with IFRS for each financial year, within a period of 3 months, from the end of the preceding financial year. Banks are required to submit draft audited balance sheet and profit and loss account along with a scheme of ap-propriation and distribution of the profit for the year for approval by the CBO in respect of local banks before such accounts are submitted to the bank’s shareholders for their approval and, in the case of foreign banks, details of profits proposed to be remitted to their head offices. Banks are required to prepare their financial statements as per the forms prescribed by the CBO. Banks are required to ensure that their external auditors meet with the CBO after submitting their financial statements for approval by the CBO. Banks must then publish, by 31 March of that following year, its approved and audited finan-cial statements of account in at least one Arabic language newspaper published in Oman. In addition to the publication of the annual accounts, banks are required to publish unaudited quarterly and semi-annual accounts.

  16. Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?

    The CBO obliges all Omani banks to apply all the ceilings and supervisory ratios at the consolidated level of the bank and its group (i.e. including all branches and/or subsidiaries inside and outside Oman). The CBO also conducts onsite and offsite supervision in relation to the operations of Omani banks and their group in Oman and in any other jurisdiction in which an Omani bank may be conducting banking business.

  17. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    Shareholdings in a bank by an individual, incorporated body and joint stock or holding company (to-gether with related parties) are restricted to 15 per cent., 25 per cent. and 35 per cent. of the capital of the bank respectively. No person owning 10 per cent. or more of the capital of one bank may own more than 15 per cent. of the capital of another bank. Any change of ownership of more than 10 per cent., any change of more than 25 per cent. ownership in a shareholder having more than 10 per cent. in a bank and merger or consolidation of a bank each requires the prior approval of the Board and the CMA.

  18. Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    No person owning 10 per cent. or more of the capital of one bank may own more than 15 per cent. of the capital of another bank. Any change of ownership of more than 10 per cent., any change of more than 25 per cent. ownership in a shareholder having more than 10 per cent. in a bank and merger or consolida-tion of a bank each requires the prior approval of the Board and the CMA. During the approval process, the Board and the CMA will have extensive discretion to request such information as they may consider necessary or relevant for them to consider, before determining, whether or not the applicant is fit and proper for the purposes of being allowed to acquire and hold a large stake in a bank in Oman.

  19. Are there specific restrictions on foreign shareholdings in banks?

    Foreign shareholding in banks is generally permitted up to 70 per cent. Up to 100 per cent. foreign own-ership may be permitted subject to the approval of the Council of Ministers of Oman. Please also note the restrictions set out in Questions 17 and 18 which will apply in any event.

  20. Is there a special regime for domestic and/or globally systemically important banks?

    Oman has adopted the Basel III standards and the CBO has issued the Basel III Capital Adequacy guide-lines to all Omani banks, stating the minimum requirements for capital adequacy and capital conservation buffers. Oman’s ‘systematically important’ banks are required to maintain additional capital coverage. Accordingly, a concept called domestic systemically important banks (D-SIBs) was coined by the Basel Committee which evolved an empirical mechanism through which such banks which are at systemic risk could be identified in any jurisdiction. Based on the recommendations of the Basel Committee on Bank-ing Supervision (the “BCBS”), the CBO requires such banks to follow an enhanced regulatory and super-visory regime to reduce their probability of failure through adhering to the requirements of the BCBS.

    Those banks identified as D-SIBs must, amongst other things, hold rigorous stress testing exercises and have in place well-defined early warning and crisis management mechanisms, in addition to a compre-hensive risk appetite framework. Additionally, the enhanced capital surcharge for D-SIBs in Oman is set at 1 per cent, which will be enforced in phases.

  21. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    The Banking Law provides for the imposition of penalties where persons carry out banking business and/or investment banking business in Oman without complying with the licensing regulations set out in the Banking Law or the CMAL, with such persons potentially being held liable to a fine and/or a term of imprisonment as well as the closure of business premises from which the unlicensed activities may have been conducted.

  22. What is the resolution regime for banks?

    There is no specific resolution regime in Oman for banks, although the Banking Law, the CCL and the Commercial Law (RD 55/1990) contain the legal regime to remain applicable to banks in case of their insolvency, liquidation, dissolution or discontinuation of their activities.

  23. How are client’s assets and cash deposits protected?

    Under the Banking Law and CBO regulations, Omani banks are required to take certain measures that protect a client’s deposits. The CBO may from time to time require deposit-taking banks to keep re-serves at set ratios, limits and sizes relative to their deposits.

    Oman has also established a bank deposit insurance scheme (the “BDIS”). It is mandatory for all banks receiving deposits to be members of the BDIS. Deposits are eligible for compensation if they are sav-ings deposits, current accounts, call deposits, time deposits, government deposits, trust and pension funds deposits and other deposits specified by the CBO. The current ceiling of reimbursement under the BDIS is OMR 20,000.

  24. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    There is no bail-in tool in bank resolution in Oman.

  25. Is there a requirement for banks to hold gone concern capital (“TLAC”)?

    The CBO has issued instructions for implementing capital adequacy and liquidity coverage for conven-tional banks based on the Basel III guidelines issued by the BCBS. The regulatory capital, T1 Capital CET1 and AT1 is as set out in Question 12, as are the minimum capital requirements for Omani banks. The capital buffers have been outlined in addition to the minimum capital requirements, which could be used at the time of stress and a breach in capital buffers will lead to constraints on distributions but not on the operations of the bank. The capital buffers have to be met solely from CET 1. The capital buff-ers include a capital conservation buffer equal to 2.5% of Risk Weighted Assets (RWA), a countercycli-cal capital buffer of 0 per cent. to 2.5 per cent. of RWAs.

  26. In your view, what are the recent trends in bank regulation in your jurisdiction?

    The CBO continues to work on strengthening regulatory oversight as well as safeguarding consumer and investor protection in line with regional and international standards and practices. Oman is committed to a strict implementation of anti-money laundering rules and regulations preventing other nefarious practic-es (i.e. credit card frauds and similar) and to ensuring that the local banking infrastructure and financial sector is protected in every way.

  27. What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?

    As in most other jurisdictions, the biggest threat to the success of the financial sector in Oman is the challenge faced by banks in ensuring stability across the sector as well as dealing with consumer protec-tion concerns. The CBO has set up a dedicated Financial Stability Unit for this purpose and undertakes close and regular reviews of all relevant factors relating to continued stability, scope for volatility, sys-temic risks and related matters on a regular and continuing basis. Cyber security threats are ever-present and have increased significantly in recent years and weigh in addition to risks caused by geopolitical fluctuations or overreliance on certain commodities. Oman has also taken a number of measures to address risks arising from money laundering and terrorism financing including setting up a separate anti-money laundering and terrorism financing unit, operating within the CBO. The CBO is constantly review-ing its approach to all challenges and risks and takes proactive measures to reduce these risks.