New law to safeguard payments.
Dubai: A new law intended to give legal certainty to payments and create confidence in transactions involving securities in the financial services industry has come into force.
His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, has enacted the Dubai International Financial Centre's (DIFC) new Payment System Settlement Finality (PSSF) Law.
This law establishes a legal foundation to build a regional transaction processing hub in the DIFC that will provide payment systems and other ancillary services.
The PSSF law is intended to create a legal foundation to make Dubai the regional hub for processing payment transactions with adequate protection.
It is modelled on international best practices in international jurisdictions. The motivation behind the European Union's (EU) Settlement Finality Directive, for example, was to reduce the "systemic risk" inherent in payment and securities' settlement systems while minimising disruptions caused by bankruptcy.
"The enactment of the PSSF Law forms part of a comprehensive infrastructure that [the] DIFC is creating to catalyse the development of the financial services industry in the region," said Omar Bin Sulaiman, DIFC governor.
The PSSF law will support the Real-time Automated Payments in DIFC (RAPID). This is a new service which will provide transaction processing services within the DIFC to banks and their customers both in the financial centre and in the wider region.
RAPID services include cross-border payments, thus promoting trade, money market and financial market-related payments.
The purpose of the law is to promote the maintenance of an efficient financial system in the DIFC and to avoid significant damage to the DIFC system which could result from the failure of a participant in the payment system.
According to Nasser Saidi, chief economist at the DIFC, the law will act as a market building measure, as well as boosting confidence.
"This law promotes the proper functioning of high value payment systems in the DIFC, as well as clarity surrounding the fact that payments flows are made with 'finality' - that is, such that they cannot be unwound or revoked," Saidi said.
"Payments are the plumbing of the economy, and this law will protect the soundness of the financial system. If each of the parties are assured they will get paid, they will be willing to increase the number of transactions, so the law also serves as a market building measure."
Legislation on settlement finality is already well established in jurisdictions across the globe. Despite the very public collapse of investment bank Lehman Brothers last September, payments systems did not collapse.
"Lehman was seen as the tipping point for a lot of the [financial] problems, but it appears that [payment] systems, could, in broad terms, cope with it," says Philip Jolowicz, head of Financial Services at Hadef and Partners, a law firm in Dubai.
He added that the new law was to be welcomed.
"Where you have companies that go into insolvency, the moment things go wrong, there can be large numbers of payments for securities in limbo.
"It is extremely helpful to know what's going to happen to a security once it goes into the system - the idea is that you know you can get your money back, or get back what you bought."
Al Nisr Publishing LLC 2009. All rights reserved.
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|Publication:||Gulf News (United Arab Emirates)|
|Date:||Aug 10, 2009|
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