Before the Federal National Council adjourned for the summer in March, it passed a draft of the Credit Information Law. This is a vital step towards building a modern regulatory framework to govern the financial sector, but there are many more areas where the council can aid the Government's efforts to do so. Most vital is a long-overdue revision to the insolvency laws. Now FNC members are to have their chance this month: the President, Sheikh Khalifa bin Zayed, issued a decree yesterday setting October 21 as the start of the FNC's next session. On the agenda are issues as broad as Emiratisation and food security, English-language instruction and the threat posed by over-fishing. A busy schedule: but the FNC might wish to add to that list the burden that an outdated bankruptcy law places on economic recovery. In particular, there is a dire need for an insolvency law that does not threaten a person with jail if they write a cheque that bounces..
Granted, most cases of bounced cheques do not end up with the offender imprisoned, or even tried. But that surely is an indication of the need for reform. Laws are intended not only to regulate society by prohibiting behaviour that has a negative effect, but also to reflect society by permitting behaviour that society finds acceptable. If most "victims" of bounced cheques find that a non-custodial solution to the problem is more effective, then the law should reflect that.
Although the proposed Credit Information Law will force financial institutions to surrender information to a ratings bureau, many banks and other lenders are already doing so voluntarily. Some might consider that this makes the need for reform less pressing, but they would be wrong. That banks and lenders are beginning to do what is prudent is welcome, but let us not forget why the world's finances ended up in the state they did. It certainly wasn't because of over-regulation.
A modern regulatory framework is not simply about making banks more cautious about how they lend and invest, important though that is. It is also a tool to build confidence in the stability of the markets. The UAE will rebound, but an empowered credit rating agency and a modern bankruptcy law are vital to lessening the impact of any future crisis.