The Central Bank is preparing a "fit and proper" test for appointments to executive positions in the financial services sector.
In a speech given last week but released yesterday, Sultan bin Nasser Al Suwaidi, the Governor of the Central Bank, said that the banking regulator would seek to ensure that executives at UAE lenders had the necessary technical understanding to safely manage their organisations.
"This test is focused on ensuring that such officers do have the required technical expertise, including expertise in risk assessment and risk management, which proved essential in the wake of the recent international financial crisis," he said. In his speech, Mr Al Suwaidi called on lenders to attempt to minimise the effect that a single bloc within a bank's board can have on its appetite for risky lending.
"A sound board of directors' governance would require the independence of the board of directors," he said.
"This includes the absence of subordination of one member to another member, the absence of close family relationships between members and the absence of overlapping interest links."
As part of UAE banking law, the Central Bank is able to block appointments to banks' boards of directors if it chooses.
In late 2010, the Basel Committee on Banking Supervision expanded its corporate governance requirements across the banking system to include a greater focus on risk management, at the same time upping capital requirements for lenders. A number of banks in the UAE include multiple members of the same family on their board.
These include the boards of National Bank of Abu Dhabi, three of whose directors are from the Al Dhaheri family, and Dubai's Mashreq, which is majority controlled by members of the Al Ghurair family, five of whom sit on the bank's board.
The Central Bank's call for higher corporate governance standards was "quite positive" and "a bold move if implemented", said Graham Lovett, a regional managing partner of Clifford Chance, a law firm.
"Given the number of financial institutions in the UAE, it sounds as if the impact will be quite great overall," he said.
"Sometimes there's a perception among foreign investors and entities that [banks'] boards are sometimes not terribly independent."