UAE tightens bank bonus rules ahead of October deadline

UAE-licensed banks, insurers and reinsurers have until 11 October to audit their pay structures and report gaps to the Central Bank, according to figures reported by Emirates247. The requirement stems from Central Bank Circular No. 5 of 2026, already in effect, which reworks how variable bonuses are calculated, paid out and clawed back across the sector.

The stated goal is to stop staff chasing short-term revenue at the expense of longer-term risk, a concern regulators worldwide have raised since the 2008 financial crisis. Institutions must now build board-approved pay frameworks that weigh governance, compliance and audit outcomes alongside profit.

Under the circular, key risk takers must have at least 40% of variable bonuses deferred for a minimum of three years, rising to 60% deferred over five years for senior risk takers. Half of all variable pay must also be delivered in shares or similar instruments rather than cash, according to Emirates247.

Institutions are additionally required to build in 'malus' and 'clawback' clauses, letting them cut unvested bonuses or reclaim ones already paid if fraud, negligence, governance failures or hidden risk-taking later come to light.

Ultimate accountability for remuneration policy now sits with each institution's board, which must approve and monitor pay systems and set up a remuneration committee with independent, non-executive members working alongside risk, audit and compliance functions, per the reported rules.

Firms must also identify 'material risk takers' — those with authority over large financing, underwriting, trading or volatile-asset decisions — and review anyone in the top 5% of earners to see if they meet that threshold. Guaranteed bonuses are now restricted to a new hire's first year and require board sign-off, while severance pay can no longer be used to offset previously clawed-back bonuses.

For Islamic financial institutions, members of internal Sharia supervisory committees must now receive fixed pay only, with no link to the profitability of Islamic products or the volume of approvals they issue, intended to protect their independence.

Annual disclosure is now mandatory: institutions must publish details of deferral arrangements, bonus recoveries and pay for senior management and control functions, and submit a full report to the Central Bank within three months of each financial year-end. The Central Bank has warned that non-compliance could bring financial penalties, restrictions on management powers, or bans from working in the UAE financial sector.

While this circular is aimed squarely at internal pay structures rather than customer-facing pricing, changes to how banks manage profit and risk internally can, over time, feed into broader institutional priorities, including cost management. For UAE residents and businesses regularly converting funds abroad — whether settling overseas property purchases, paying international suppliers, or moving savings between the UAE and UK — the more relevant factor day-to-day remains the transfer fees and exchange rate margins charged by individual providers, which are worth comparing regardless of internal regulatory shifts at any single institution.