Will some of UAE's remittance firms cease to exist this year?

Money exchange companies in the UAE have another two or so months to comply with the revised capital requirements from the UAE Central Bank, which had earlier advised the more than 140 money exchange companies operating in the UAE to enhance their capital base in order to improve the efficiency of the money changing business in the UAE. 

The new regulations for the licensing and monitoring of money exchange companies was issued two years ago with a grace period of two years ending December 31, 2015.

Money exchange companies that wish to operate as limited liability companies need to enhance their paid-up capital to Dh50 million with effect from January 1, 2016.

Market observers believe that the country’s money exchange business may witness some reshuffle and consolidation within the next two months as a result of the new regulations coming into force.

What is more pressing is the need to give a bank guarantee to the Central Bank, worth an amount equal to the capital of the money exchange company within two months.

There are exchange companies still unable to meet the target, say observers, which may result in further consolidation of the market.

According to the UAE Central Bank circular, the minimum paid-up capital of a limited liability company applying for a new money exchange business or existing LCC companies, is fixed at Dh50 million, with an additional 10 per cent (Dh5m) for opening each additional branch.

There are over 800-plus branches of money exchanges and 140-plus money changing agencies all over the UAE.

While several of these are LLCs, not all of them have complied with the requirements, even as the January 1, 2016, deadline is fast approaching.

“The paid-up capital of the license applicant is not less than Dh2,00,000 (Dh2 million) for carrying on purchase, sale and exchange of foreign currencies in the form of banknotes, coins and travelers cheques,” says the relevant revised UAE Central Bank guideline, “and not less than Dh5,000,000 (Dh5 million) for carrying on remittance business within and outside the UAE in addition to sale and purchase of foreign currencies and travelers cheques.”

For money exchange companies handling the money remittance business as well as the Workers Payment System (WPS) using the UAE Central Bank’s wage protection system, the minimum capital requirement is Dh10 million.

“It has been a welcome step to enhance the quality and efficiency of money remittance business. Earlier, the minimum capital requirement for money changers was only Dh1 million and for others it was Dh2 million. Now the customers can feel relieved because even if a limited liability company’s liability is limited to their capital base, if they are doing money remittance business, they should have sufficient capital base of minimum Dh50 million,” said a senior official from a leading money exchange company.

“Not all LLC exchange companies will be able to fulfil this requirement,” he added.

“Several large companies are already believed to have complied with the requirements, even as others are on track to meet the target before the deadline,” the source said.

And there is requirement to create a Remittances Intermediate Account where the customers’ funds are kept before the payment is settled abroad. This amount must be used for settlement of accounts and not for any other purposes, according to the Central Bank.

Osama Al Rahma, Chairman of Foreign Exchange and Remittance Group (FERG), said the group has been encouraging its 70 members who constitute the major chunk of money exchange business in the UAE to comply with the requirement as soon as possible. 

He said some members still have some confusion about the requirements, especially the provisions regarding bank guarantee: “We understand that our members are in the process of adjusting their capital structure to meet the new requirement and some of them may need some more clarification. We are awaiting for some more clarity which is expected by the beginning of November 2015,” said Al Rahma, who is also a Director at Al Fardan Group and the General Manager of Al Fardan Exchange.

One requirement in the new rule is that the applicant for a new money exchange license should give an undertaking to provide a bank guarantee, drawn in favour of the Central Bank of the UAE, issued by a bank licensed in the UAE and the value of the bank guarantee should be equal to the 100 per cent of the paid-up capital. 

“Everybody (in the money exchange business) understands their obligations and they have to meet their capital adequacy norms by January 1, 2016. The new law came into effect two years ago and there was a grace period ending December 31.”

Applicants for a new money exchange company should be a UAE national with minimum 21 years of age and 60 per cent of the total paid-up capital will be owned by the UAE partner, according to the rule.

Al Rahma said he does not have full details about the status of revised capital structure of the association members. “We have been encouraging FERG members to comply with the new rules. We are keeping our fingers crossed about a few issues, especially regarding the bank guarantee requirement for an equal amount to the company capital. There is not much time left to comply with the requirement,” Al Rahma said.

He added that one possible solution is consolidation of the money exchange companies which is good for the industry. “Through consolidation, you can still exist in business and meet the Central Bank requirement.”