Banks operating across the UAE have been urged to reassess their customer onboarding procedures and contractual documentation ahead of a significant legislative reform set to come into force later this year.
Seya Rahnema, Hala Abdulghani and Matthew Escritt of Pinsent Masons noted that the UAE’s updated civil code, Federal Decree Law No. 25 of 2025, will regulate civil transactions nationwide from 1 June 2026 and carries wide-ranging consequences for banking and finance arrangements.
Rahnema explained that the revised civil code goes beyond a routine amendment of existing principles. In her view, the legislation modernises and liberalises the prior framework by strengthening legal certainty and bringing the UAE’s legal regime closer to international standards. It also establishes clearer statutory parameters and enhances predictability in application.
Abdulghani further observed that the reform elevates the codified legal benchmark to reflect contemporary commercial practice, ensuring that the framework is better suited to today’s transactional environment.
The legislation will grant parties to civil contracts greater discretion in selecting the governing law of their agreements, marking a shift towards globally recognised practice.
Previously, contracts were automatically subject to the law of the state in which the parties were based. Where parties were located in different jurisdictions, the applicable law defaulted to that of the state in which the contract was concluded, unless an alternative was agreed. Under the new regime, contracts will be governed by the law expressly chosen by the parties. In the absence of such agreement, the governing law will be that of the state where both parties are located, or, if they are in separate jurisdictions, the law of the place of performance.
Upon implementation, the legislation will also lower the age of majority from 21 lunar years to 18 Gregorian years, aligning the civil code with the UAE’s commercial transactions framework. For financial institutions, this adjustment means individuals aged 18 and above will be legally entitled to open bank accounts and enter into loan or guarantee arrangements. Rahnema and Abdulghani advised banks to review and amend their know-your-customer and onboarding policies accordingly.
Another notable reform is the explicit recognition of framework agreements as legally binding instruments, a status not clearly afforded under the previous code. Escritt highlighted that this development heightens the importance for lenders to negotiate term sheets and mandate letters with particular care, as such documents may now attract closer judicial examination.
Interpretative rules governing contracts will also be revised from June, with ambiguities to be resolved in favour of the party assuming the obligation or the weaker contracting party. Rahnema and Abdulghani indicated that lenders should therefore prioritise precise drafting and minimise reliance on implied terms, reducing the risk of provisions being interpreted adversely in the event of dispute.
