The Laws And Regulations Governing Banking In Oman

• Published date: 15 December 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Tax, Capital Adequacy/BASEL, Financial Services, Compliance, Corporate and Company Law, Contracts and Commercial Law, Sales Taxes: VAT, GST
• Law Firm: BSA Ahmad Bin Hezeem & Associates LLP
• Author: Mr Arsalan Tariq

The following Q&A, originally published for Lexis Middle East, answers important questions regarding the laws and regulations governing Banking in Oman.

1. What are the main laws regulating the banking sector in this jurisdiction and what do they cover?

The banking sector in Oman is controlled by the following laws and regulations:

• The Banking Law ('BL') promulgated by a Royal Decree no. (114/2000) and its amendments.
• The Islamic Banking Law Regulatory Framework ('IBRF') issued on the 18th of December 2012 by the Central Bank of Oman which has provided licensing rules and guidance applicable to banks and Windows regulated and supervised by the Central Bank of Oman ('CBO') and Sharia governance framework to ensure Sharia compliance in Islamic banking operations of Islamic banking institutions in Oman.
• The circulars issuing by Board of Governors of CBO.
• Decisions issued by the Capital Market Authority.

2. What is the name of the main regulators responsible for regulating the banking sector and which areas do they cover?

CBO is responsible for regulating and guiding the banks including the conventional and Islamic banks, and the Capital Market Authority is responsible for regulating the insurance providers in Oman.

3. What is the definition of a bank in this jurisdiction?

As per the Banking Law ('BL') promulgated by Royal Decree no. (114/2000) and its amendments, the bank is defined as: 'Any person licensed by the Central Bank authorised by the jurisdiction in which it is organized to carry on the banking business'.

Further, banking business is also defined as: 'The undertaking as the principle and regular course of business conduct', as such business conduct may be defined and interpreted by the Board of Governors of the Central Bank, in any one or more of the following activities or such additional activities may be specifically authorised in amendments to the law by the Board of Governors of the Central Bank in a licence issued pursuant to the BL:

• the operation of receiving monies as demand or time or saving deposits;
• the opening of current accounts and credits;
• the loan of money or extension of credit;
• the loan of money on personal, collateral or real property securities;
• operation of credit card business;
• the issuance and negotiation of letters of guarantee and letters of credits;
• the payment and collection of checks, orders, payment vouchers and other negotiable instruments;
• the sale and placement of bonds, certificates, notes or other securities;
• the acceptance of items for safekeeping; the exercise of fiduciary powers;
• the undertaking of Investment and Merchant Banking and other Financial activities which may include but not be restricted to
  • corporate finance,
  • project finance,
  • investment brokerage and investment advisory services,
  • investment management,
  • the underwriting of securities,
  • custodian and fiduciary services,
  • leasing,
  • factoring,
  • hire purchase financing
  • any other similar activities approved by the Board of Governors as banking business or the purchase, sale and exchange of foreign and domestic currency or other monetary assets in the form of cash coins and bullion, provided, however, that natural persons who deal exclusively in the business of exchanging foreign and domestic currencies on a retail basis and persons engaged in the operation of retail business establishments and places of public accommodation who exchange foreign currencies only as a convenience to their customers shall not be deemed to be engaged in the banking business.

4. Are the same institutions able to provide regular and Islamic banking services?

Yes, the same institutions are entitled to offer both conventional and Islamic banking products to the public at large provided that they obtain the required licenses including the licenses for the Islamic window of domestic conventional banks under Clause 4.3 of IBRF.

5. Are there any special regulatory requirements for those providing Islamic banking services?

A full-fledged domestic conventional bank and branches of a foreign bank who wish to conduct Islamic banking business in Oman shall be Sharia-compliant and shall conduct its activities, operations and business in accordance with the rules and principles of Sharia as per Article 1.4 of IBRF. In addition, every financial institution who provides Islamic banking business in Oman shall be supervised by a Sharia supervisory board that will guide that bank or its Islamic banking window in designing and implementing its products and conducting its Islamic banking activities.

6. Does banking regulation operate in a different way in any free zone jurisdiction?

No, there is no difference in the way Islamic finance can be operated onshore and in any free zone in Oman.

7. What are the main steps a bank needs to take if it wishes to provide banking services in this jurisdiction?

Filing a formal request for final approval - domestic banks

• This shall follow granting of initial approval by the Central Bank.
• License fee of RO 5,000; 17
• Evidence of receipt of paid-up capital in the name of the bank this shall be a minimum of RO 100 million and should preferably cover projected losses, if any, in the initial years.
• Payment of capital deposit to the Central Bank (this will be one tenth of one percent of the global assets of the bank forecast on establishment) with minimum of RO 50,000 and maximum of RO 500,000.
• Copy of lease agreement with lay out for head office / branch(es);
• Letters of clearance from Royal Oman Police and fire prevention authorities for the premises.
• List of directors and authorized officials of the bank with specimen signatures.
• Confirmation that commercial company's law, commercial registration and municipality and other government requirements have been completed and approvals received (with copies of evidence, including commercial registration print out, as may be relevant);
• Letter of undertaking on qualification and continuity of management;
• Confirmation that staff, IT systems and all other infrastructure, internal policies and procedures, product programs and all other pre-requisites are in place and that all conditions of initial approval/licensing requirements, including Shari‟a governance structure and systems, have been met.
• The applicant should nominate a suitable official in time to liaise with all the concerned departments of the Central Bank to ensure familiarity and compliance with regards to regulatory supervisory, operational / reporting stipulations, payment systems, bank credit and Statistical Bureau, cheque return system, currency, and treasury requirements.
• Draft Articles and Memorandum of Association and public offer documents should be submitted well in time for the Central Bank's review and observations if any.
• Details of proposed SSB members and a letter of confirmation that they follow the fit & proper criteria of the Central Bank should be submitted.
• The Founders' Committee should promptly keep the Central Bank apprised of the preparatory and completion progress and details including public issue.
• Copies of the Articles and Memorandum of Association; and
• Evidence of compliance with CMA requirements (e.g., the certified minutes of constituent meeting).

Application process - foreign banks

• This Article shall apply to foreign banks, not operating in Oman and seeking to open Islamic banking branches in Oman.
• An application for a license process must be in line with the form prescribed by the Central Bank.
• The application process for foreign banks will involve the following steps:

Filing a request letter - foreign banks

It is recommended that a foreign bank initially file a letter of request, highlighting the bank's background (with audited financials for the last three years) and providing justification for interest in commencing Islamic banking in Oman, business vision, plans, strategies, and business focus.

Filing a formal request letter for initial approval - foreign banks

• Formal application from the authorized official of the bank along with the list of shareholders holding 5% or more of the subscribed capital and details of directors and senior staff of the bank.
• Audited financial reports of the bank for the last three years.
• Detailed feasibility report covering at least five years of forecast.
• The feasibility report shall be a comprehensive and professionally prepared report, in detail, covering the vision, business policies, strategies and projections, highlighting organization structure including Shari'a governance and compliance set up, risk management approach and details, SWOT analysis, stress testing, etc.
• Payment of application fee of RO 5,000;
• Copy of the bank's board resolution, approving opening of the branch in Oman, providing authority to the signatory to sign the application and complete the application requirements and submitting assurance of head office guarantee on approval of the application.
• Letter from the home country supervisor approving the new branch and assuring signing of Memorandum of Understanding and supervisory cooperation on approval; and
• Any other requirement the Central Bank may call upon in specific circumstances.

Filing a formal request for final approval - foreign banks

• This shall follow grant of initial approval by the Central Bank.
• License fee of RO 5,000;
• Evidence of receipt of assigned capital in the name of the branch; this shall be a minimum of RO 20 million and should also preferably cover projected losses, if any, in the initial...