Banks and financial institutions operating in the UAE have been advised to review their customer onboarding processes, contracts, and guarantee structures ahead of the implementation of Federal Decree Law No. 25 of 2025, which will take effect on 1 June 2026.
Legal experts from Pinsent Masons highlighted several key changes:
- Contractual Autonomy – Parties now have more freedom to select the governing law for contracts, aligning UAE practice with international norms. If no agreement exists, the law where the contract is performed will apply.
- Lower Age of Maturity – The age of contractual capacity drops from 21 lunar years to 18 Gregorian years, allowing younger individuals to open bank accounts, take loans, or enter guarantees. Banks are advised to update KYC and onboarding policies accordingly.
- Recognition of Framework Agreements – Term sheets, mandate letters, and other preliminary agreements are now explicitly recognized as binding contracts, emphasizing careful negotiation and documentation.
- Contract Interpretation Rules – Ambiguities will be interpreted in favor of the weaker party or the party bearing the burden, requiring clear drafting to avoid disputes.
- Hierarchy of Legal Sources – Islamic Sharia is now prioritized over custom in cases where legislation is silent, giving courts greater discretion and flexibility in interpretation.
- Damages and Compensation – Parties can pre-determine compensation, but courts may adjust amounts based on proportional fault, actual loss, or fraud/gross negligence. Lenders must ensure reasonableness and maintain evidence of loss.
- Guarantee Enforcement – Creditors cannot execute against guarantors’ property until the debtor’s assets are exhausted, unless the guarantor is jointly liable or the contract specifies otherwise.
Legal experts described the new civil code as a significant modernization of civil and commercial law, increasing clarity, aligning with global practices, and reinforcing the UAE’s status as a major commercial hub.
Financial institutions are encouraged to proactively adapt policies, contracts, and operational frameworks to comply with these changes and mitigate potential legal risks.
