In a circular published on 11 May, the Central Bank has imposed an immediate ban on new approvals of requests from banks and finance companies to sell “savings and investment” and “non-capital guaranteed or protected” takaful insurance products until further notice.
This is while the authorities create new guidelines for bancassurance distribution of such products, that according to the circular, will require banks to profile customers for suitability, improve transparency of such products as well as introducing a “grievance redressal mechanism”.
The Central Bank will also fine banks that violate the new framework.
It added that banks with specific approval for marketing Term Life insurance and general insurance products may continue to market these “as per the approvals”.
“However, the relevant employee should posses the requisite qualification and should use a system to assess the suitability of products for customers,” read the circular.
Soaring complaints
It added that it receives an “increasing number of complaints in relation to savings and investment insurance/takaful products”, explaining that response from providers and insurance companies to ongoing complaints have been “not satisfactory”.
“The Central Bank observed a common theme with complaints of mis-selling of these products, which are complex in nature and are not well understood.
“We observed that staff who are marketing the products at the counter are neither well trained to understand the risk profile of the customer nor have the ability to explain such products to the customers,” slammed the authority.
It warned that banks and finance companies have 90 days to “amicably” resolve all outstanding complaints relating to such products.
IA and SCA reforms
The clampdown comes just a month after the Insurance Authority, the main regulator of life companies in the UAE confirmed it will go ahead with a ban on indemnity commissions, limits to fees and charges on industry products and tighter rules on financial advisers.
Meanwhile, the mutual funds industry in the UAE is still waiting for clarity from the Securities and Commodities Authority (SCA) on its recently introduced registration and promotion systems.
The new SCA regulations require an asset manager to register a foreign mutual fund for sale in the UAE rather than a local promoter registering the fund as previously happened.
Earlier this month, Zurich Life International signed an “exclusive” 10-year distribution agreement with Standard Chartered in the United Arab Emirates (UAE).
Regulatory overhaul
Nigel Sillitoe, chief executive Dubai-based Insight Discovery, a consultancy firm that provides market intelligence to the region’s financial services industry, said: “The circular appears to suggest that all banks need to rectify all the outstanding client complaints ‘amicably’ within 90 days.
“This could see an interesting outcome for the banks and the insurance companies, as the UAE central bank in the past has generally taken the positon of ‘return the client to the monetary position’ he was in before he or she was mis-sold.
