Spotlight on the UAE
Chapter 2 - Regulatory Landscape
The DMCC’s role in the UAE gold market
Until the establishment of the DMCC, Dubai’s gold market had been largely associated with its Gold Souk in the Deira district, much like the Kapalıçarşı (Grand Bazaar) in Istanbul. Following the Emirate’s decision to take a more prominent role in the world gold trade and promote Dubai as the “City of Gold”, the DMCC was established to develop the Emirate’s gold value chain, focusing on trading, refining and investment. To achieve these goals one of the first steps was to introduce DMCC Tradeflow in 2004, a trade finance product, which offers a customised online platform to register possession and ownership of commodities stored in UAE-based facilities. In 2005, the Dubai Gold and Commodities Exchange (DGCX) was established, this being an electronic financial and commodity derivatives exchange offering futures on gold, silver, copper, zinc, currencies, crude oil, equity indices and single stock futures on a number of global stocks. The same year the Dubai Good Delivery Standard (DGD) was introduced, the standard for 1kg gold bars of 995 purity.
Current regulatory environment: Responsible gold and other initiatives In October 2019, the UAE Cabinet approved a policy to enhance the country’s position as a global hub for the gold and jewellery trade. The central aim of this legislation has been to enhance the competitiveness of the UAE gold market, around three main pillars: governance, sustainability and innovation. The main strategic programs include the governance of the gold sector at the federal and local level, the establishment of a federal platform for gold trading and traceability, international marketing of the gold sector, greater use of technology in the gold market (such as tokenisation), the establishment of the UAE’s Good Delivery system and, finally, the promotion of UAE-based conventions related to this sector, such as the annual Dubai Precious Metals Conference (DPMC). In essence, integrating the regulatory environment across the Emirates should standardise rules governing the gold sector, eliminating loopholes and so potentially improving enforcement.
Following on from this, at the November 2021 DPMC, a UAE Good Delivery Standard (UAEGD) was announced. This will replace the DGD while keeping most of its features and adopting it nationwide. While the DGD was solely a Dubai initiative, by expanding it to cover the whole country the UAEGD will bring the gold market of the entire Emirates under one umbrella. In effect, the UAEGD is meant to align the UAE gold sector, principally by targeting refiners and smelters, under the auspices of the OECD responsible gold and due diligence guidance, which is already covered in the DGD. Although the specifics of the UAEGD have not yet been announced, it is widely expected to be a standard that provides a national framework for the gold sector, in line with international best practices.
Building on the above developments, on 21st July 2022 the UAE’s Ministry of Economy (MoE) announced the Due Diligence Regulations for Responsible Sourcing of Gold. These build on recommendations from the Emirates’ Financial Action Task Force, which looked at responsible sourcing mechanisms that were already in place in other jurisdictions and how these could be incorporated in the UAE. The Due Diligence Regulations for Responsible Sourcing of Gold specifies “the facilities under its control”, which include companies working in gold refining and the recycling of gold products inside and outside the country, falling under the precious metals and gemstones trade sectors, and categorized as designated non-financial business or professions (DNFBP).
What makes this initiative stand out for the UAE is that, unlike past practices, the adherence to these guidelines is mandatory for all gold refineries operating in the country, starting from next January. The MoE further stipulated that the new guidelines support the legislation to counter money laundering and combat terrorism financing, in line with OECD directives.
Comprehensive Economic Partnership Agreements
The CEPAs are bilateral trade agreements and so are not limited to the UAE’s precious metals market. However, as the UAE-India CEPA makes clear, gold and, to a lesser extent, silver, have benefited considerably. Furthermore, the fact that this CEPA was finalised in just 80 days, and with the Indonesian and Israeli CEPAs being agreed in quick succession, demonstrates the importance of these mechanisms to the authorities. As touched on elsewhere in this Spotlight, this may explain why the new responsible guidelines when implemented will be mandatory. In that regard, as more CEPAs come into play these could prove to be one of the most important developments for the UAE precious metals sector.
UAE Gold Bullion Trade
Source: Metals Focus, Bloomberg