This is the latest blog in our series aimed at keeping our members and those engaging with Oman informed about key legal developments and their practical implications. Written by experts in their field, these articles provide timely insights to help you navigate regulatory changes effectively. For this edition, we extend our gratitude to our member Mussadak Mirza, Barrister at Cobden House Chambers and UK Lead at the Omani British Lawyers Association (OBLA).
Mussadak gives us a walkthrough of Oman’s new Banking Law below, along with its key regulatory changes and implications for you to be aware of.
On the 1st of January 2025, Oman introduced comprehensive changes to banking regulation through the enactment of Banking Law (Royal Decree 2/2025) (the New Banking Law), which repeals and replaces the previous Banking Law (Royal Decree 114/2000) (the Old Banking Law).
Although the New Banking Law retains many of the provisions from the Old Banking Law, it introduces significant changes to the regulatory framework governing banking and financial institutions in Oman, aiming to modernise the sector and enhance regulatory oversight. It introduces the supervision of digital and investment banks, clearly defines financial activities, significantly strengthens financial oversight of the regulator and regulation of licensed banks, enhances Islamic banking practices, establishes consumer protection mechanisms and sets out in detail the penalties for non-compliance.
Expansion of the Authority of the CBO
The New Banking Law has expanded the regulatory framework of banking with the introduction of the concept of a “digital bank” which is defined as “A bank that obtains a license to conduct Banking Activities through digital platforms or digital channels using modern technologies”. The Central Bank of Oman (CBO), as the regulator of banking and financial services sector in Oman, will be responsible for organising and supervising digital banks, ensuring compliance with regulations issued by the CBO. Investment banks will also be subject to regulation by the CBO including with Securities Law.
Regulation of Licensed Banks, Applications and Approvals
The New Banking Law introduces a requirement for a local bank in Oman to be in the form of a public joint stock company to apply for a banking license. There is a shorter period of time in which the CBO must issue a decision to grant or refuse a banking license (previously 120 days, now within 90 days). Licensed banks must obtain the approval of the CBO to carry out activities related to securities such as corporate and project financing, investment brokerage business, investment consultancy services, investment management, underwriting, underwriting of share issuance, fiduciary services, custody, trust and brokerage services before obtaining the necessary license from the competent authority.
Comprehensive Framework for Islamic Banking
The provisions relating to Islamic banking largely follow those that were added to the Old Banking Law. Regulations governing Islamic banking must align with the nature of Islamic financial principles and cover areas such as licensing, risk management, liquidity, investment, disclosure and Shari’ah governance. One material addition is that the New Banking Law now expressly states that the CBO may allow conventional banks to convert Islamic windows into local Islamic banks through subsidiaries. Additionally, the New Banking Law has introduced the establishment and acquisition of special purpose vehicles for the purposes of facilitating Shari'ah-compliant transactions, aligning with existing practices.
“Financial Activities”
The New Banking Law now specifically defines “financial activities” to include financing and finance leases; financial services such as money changing, money transfers and cashing and collecting cheques; currency exchange; electronic banking and financial operating services; credit and financial information services; loan-based crowdfunding and any other activities approved by the CBO. These activities may be conducted per Islamic Shari'ah principles, under regulations and licensing to be set by the CBO. Financial institutions are under a strict confidentiality obligation which applies even after the termination of a relationship with the client. Disclosures are only permissible with the authorisation or instructions from the CBO, the client’s express consent in compliance with provision of the New Banking Law and, if required, under a judicial ruling or court order.
Consumer Protection and Confidentiality
The New Banking Law deals far more extensively with consumer protection in alignment with international practices than the Old Banking Law, by introducing detailed statutory safeguards which ensure that licensed banks and their personnel must maintain customer confidentiality, save for certain circumstances. The New Banking Law introduces a statutory obligation on licensed banks to provide customers with sufficient information on its products or services and ensure that these are provided with a high level of quality, transparency and fair treatment. This includes a requirement for licensed banks to formulate terms and conditions that are clear and understandable to all categories of customers along with the publication of a price list for products and services. There is also a prohibition on licensed banks from offering, providing, promoting, or advertising any services or products in a misleading or untrue manner.
Penalties
The New Banking Law has introduced new penalties as well as significantly increased penalty amounts as compared to the Old Banking Law, to address the failure of complying with client confidentiality, incorrect reporting or obstructing inspectors and false or misleading advertising of activities and the collection, use, or retention of client data for purposes other than its licensed activities. There are increased fines for violation of the prohibition on using the word “bank”, “masrif” or the phrase “banking business” if the entity is not practicing licensed banking activities. Similarly, the financial penalties for carrying out banking business activity in Oman without a license has also increased.
Conclusion
The New Banking Law represents a significant overhaul of the regulatory framework for banking and financial institutions in Oman, by strengthening regulatory oversight, supervisory powers and consumer protection. The implementation of clear rules on licensing, financial operations, Islamic banking and greater penalties for non-compliance will enhance transparency. Plainly, attracting investments, including foreign direct investments, hold significant importance for the economy of every country. Regulatory frameworks for banks and banking practices play a crucial role in this regard. For banks, financial institutions and foreign investors, the New Banking Law presents significant new financial and business opportunities in an evolving landscape and will help foster sustainable growth in the wider economy.
Mussadak Mirza
Barrister, Cobden House Chambers
UK Lead, Omani British Lawyers Association (OBLA)
