Banks and insurers face renumeration shake-up after new CBUAE regulations

The Central Bank of the UAE (CBUAE) has introduced a new renumeration regulation for banks and insurance companies. It significantly expands the regulatory scope by applying to insurance and reinsurance companies for the first time, alongside banks.

The new regulation increases governance requirements and introduces new limitations on severance payments, along with extra requirements around clawback mechanisms and identifying material risk takers, among other changes. 

Marie Chowdhry, a financial regulatory expert with Pinsent Masons in the UAE, said the new regulations represent a clear shift by the CBUAE away from principles‑based guidance towards a standalone, system-wide prescriptive regulatory regime.

“The CBUAE’s new remuneration regulation marks a significant escalation in supervisory expectations for UAE‑regulated financial institutions,” she said.

“By separating remuneration requirements from broader corporate governance rules and introducing a detailed, standalone framework, the regulator has made clear that remuneration is viewed as a core prudential and risk‑management issue rather than a purely HR function.

“Governance expectations are also materially strengthened through the introduction of a mandatory, comprehensive independent review of remuneration frameworks at least every three years, with a summary required to be submitted to the CBUAE.

”This is a notable shift from the previous reliance on annual board self‑assessments and signals an expectation of external challenge and objective scrutiny of remuneration design and effectiveness.

“The structure of the regulation points to a supervisory focus on process, documentation and auditability, rather than reliance on high‑level principles or self‑certification,” she said.

The extension of these requirements to insurance firms means companies that previously relied on general governance standards will now need to review their renumeration arrangements – including enhanced documentation, internal controls and approval processes. 

The regulation also strengthens remuneration governance at board and committee level with leadership now subject to enhanced oversight obligations, including periodic independent review. Regulated financial institutions are required to complete a gap analysis within 180 days of the regulation’s effective date, and reach full compliance within 15 months.

It introduces specific restrictions on severance payments, which must be performance‑linked, subject to clearly defined internal policy limits, and not be awarded where an individual has contributed to institutional failure.

For the first time, the regulations also explicitly govern remuneration of internal Shari’ah supervision committee members, with compensation required to be fixed, insulated from financial performance or Shari’ah approval volumes, and subject to periodic review at least every three years, supported by safeguards intended to preserve independence and objectivity.

Gregg Hammond, a financial services expert with Pinsent Masons in the UAE, said the new regulations would mean immediate challenges for firms in the region.

“At its core, the regulation reframes remuneration as a risk management tool rather than merely an incentive mechanism,” he said.

“Financial institutions are now required to ensure that compensation structures promote sound decision-making and long-term value creation, explicitly discouraging excessive or short-term risk-taking.  

“Importantly, the implementation timeline is ambitious. Financial institutions are expected to conduct a gap analysis within six months of the regulation’s effective date and achieve full compliance within 15 months. This compressed timeframe suggests that the Central Bank anticipates not incremental adjustments, but substantive changes to existing frameworks.

“What is emerging is a crystal-clear regulatory narrative that remuneration is no longer a downstream consideration, but a central lever in shaping behaviour, culture and financial resilience.”  

“For many institutions, the immediate challenge will lie not in understanding the regulation, but in operationalising it, particularly where legacy compensation models, governance structures or data capabilities may not yet support the required level of alignment and oversight.”