Author(s):Several

Omani Banking Regulations

The banking business is an extremely vital activity in any economy and banks have a primary and synergist task to carry out. The behaviour of the banking and finance industry is dependent on the investors' trust, and trust will be rested and held by how banks work together, associatively adding to development, strength and stability.

It is nevertheless fitting that the sectoral precision, consistency and validity are kept up by efficiently and straightforwardly set guidelines. Laws and guidelines, essential enactments, add to them with elaborations, explanations and direction originating from roundabout guidelines. In Sultanate of Oman, there are established laws like Oman Commercial Law and Commercial Companies Law.

Explicit laws like Banking Law and Capital Market Law structure establishments for banking organizations and capital market-related foundations, while bank related requirements are guided by required judiciousness, capital market guidelines revolve around disclosure.

Banks in Oman can do widespread international banking and finance, i.e., both business and speculation banking business - subject to explicit licenses and necessities. While Banking Law accommodates authorizing, directing and overseeing Islamic banking as well, there are other strong laws on Combating Money Laundering and Terrorism Financing moreover.

Banking Law, like different laws, is drafted on best industry practices and universally certify principles. The requirements alongside guidelines and directions and rules get refreshed for new and advancing needs and models and add to huge open premiums including reasonable financial practices and shopper security other than encouraging money related consideration and steadiness and differentiated development.

Banking Law 2000, an amendment of 1974 Law, sets its goals, among others, to be the advancement of improvement of banking establishments to guarantee financial strength and development and engaging the Central Bank for support of estimation of the residential cash and supervision of banking business.

The Law has figured certify worldwide gauges and standards and best Central Banking practices and engages the Board of Governors appropriately and features the elements of the Central Bank, expansive parameters on authorizing, controlling and regulating banks and banking business and specific prudential standards and restrictions - other than path forward during the time spent willful or automatic exit of banks.

Some ongoing alterations incorporate forces for the Board of Governors to receive fitting proposals of global offices and supra-national associations and expansion of Title Six to empower approve, direct and regulate Islamic Banking in Oman. The outlook for Oman's banking industry is constructive and wholesome profits increase has only been slightly toughened by way of the advent of new accounting necessities.

Shifting regulatory changes over the past 12 months, combined with the muted financial increase, have now not adversely affected the banking sector. Directives and policy amendments issued via the Central Bank of Oman imply Oman's intention to align with first-rate global practices in phrases of prudent marketplace law and client protection.

Despite these trends, Omani banks have recorded healthy growth in margins. So as opposed to taking a step returned, banks can utilize these surroundings as a possibility to innovate and fill gaps inside the marketplace, potentially improving operational efficiency and aggressive positioning.

The approach that is carried by the banks has been substantially changed or instead transformed by way of implementation of the International Financial Revenue Standards (IFRS) 9, which took place in the year 2018. Enhanced digitalization and expectations from the customers for the world-class experience, may have led the majority of the banks to exercise Customer Identity and Access Management (CIAM) for building strong relations with the customers.

CIAM's salient features assist in addressing diverse needs, which includes delivery of the personalized experience, protection against cyber fraud and intelligent solutions and easiness of digital interaction.

The risk functions associated with the banks are operating against the background of the regulatory evolution. The London Interbank Offered Rate (LIBOR) is undergoing a phase-out which is to be replaced by various alternatives like Risk-Free Rate (RFR). The banking institutions are advised for incorporating a reduction in exposures to LIBOR and building RFR-like products.

The operational risk is in the spotlight when the issues surrounding anti-money laundering fines, cyber threat and third-party is concerned. To avoid financial frauds, it is highly essential to comply with. These compliance regulations have been outlined by the Central Bank of Oman where the rules for governance along with identification, assessment, mitigation and control as well as business continuity management and information technology.

Risk around financial crimes may evidence substantial reduction by exploiting machine learning for maximizing operational efficiency and risk mitigation techniques for complying with regulatory provisions and sanction prepared for the Financial Action Task Force (FATF) Mutual Evaluation which is expected for the year 2021.

The critical growth aspect in Oman is Islamic finance, where the country enters into a consolidation stage as an international economic hub. Steady growth is encouraged together with greater transparency and improving with the more Islamic banking and finance experts. This, in turn, strengthens the public's confidence in products and services that are Shariah-compliant.

It is reported in the sustainability report that Omani banking and finance regulations have been mostly considered for the benefit of the sector. Banks have been benefitted by the sustainability disclosure where new market access has been provided, and the implementation of more all-rounded risk management is undertaken.

Objectives of the Oman Banking Law Royal Decree Number 114 of 2000:

1. Promotion of the development of the banking and financial institutions for ensuring the maintenance of financial stability and contribution to the industrial, economic and commercial growth

2. Enhancing the position and situation of the country within the international financial spectrum

3. Empowering the Omani Central Bank for issuance of currency and maintenance of the domestic and foreign currency value.

4. Supervisions of the banks and the banking business for advising the government of Oman and the international economic affairs

Powers of the Board of Governors:

1. The Board of Governors is authorized and empowered to establish an effective monetary policy for the country.

2. Examining the accounts, records, books and any other affairs of the bank.

3. Reviewing the reports and the bank applications for the requests for establishing branches and taking actions in the event suitable supervision and regulations is concerned.

Regulatory framework of the Oman Central Bank:

With the adoption of the IFRS with effective from 1 January 2019, the banks in Oman are under an obligation to comply with the other established laws of the country. The Islamic banking entities will also be governed by the remote Islamic banking and regulatory framework.

Oman's Islamic Banking:

The Islamic Banking in Oman is comparatively younger as compared to the other jurisdiction. This system was launched in 2013 when the Central Bank of Oman gave license to the first two ever Sharia-compliant banks, i.e. Al Izz Islamic Bank and Bank Nizwa.

The Central Bank of Oman regulations does not permit the products that the banks are allowed to trade in certain other parts of the GCC.

New regulations:

For facilitating the development of the Islamic banking segment, the Central Bank of Oman is working towards creating liquidity management tools to be sharia-compliant deposits and reposition for the Islamic banking entities. The additional regulatory initiative is the deposit insurance scheme introduced for the banking segment together with takaful that is the Islamic insurance principles.

Conclusion:

The Omani banking sector is highly regulated, which has undoubtedly helped the reliability on the regulations despite the economic slump due to the sudden fall in the global energy prices. The new regulatory requirements consolidate the industry's stability. But it is an essential initiative that the improvements in the oil prices are intended to reinforce the liquidity in the banking and finance system.

In the meantime, the technological improvements and the pressure from the concerned authorities are driving the financial inclusions. The banking system is set to develop rapidly and further increase its lending share by moving to reinforce the sector via the liquidity-management tools and the proposed takaful insurance scheme.