Key Changes Introduced by the New Banking Law (Royal Decree No. 2 of 2025)

Introduction

On the 1^st of January 2025, Oman enacted a new Banking Law under Royal Decree 2 of 2025 (“New Banking Law”), which repeals and replaces the previous Banking Law established by Royal Decree 114 of 2000 (“Old Banking Law”). The New Banking Law introduces significant changes to the regulatory framework governing banking and financial institutions in Oman, aiming to modernize the sector, enhance regulatory oversight, and incorporate provisions for digital and Islamic banking.

Applicability:

The licenses, permits and approvals issued by the Central Bank of Oman (“CBO”) prior to the implementation of the New Banking Law shall be valid until their expiry. Any renewals shall be in accordance with the New Banking Law. All entities which are subject to the New Banking Law have a period six (6) months from the date of its implementation.

Key Changes Introduced:

Expansion of the Authority of the Central Bank of Oman

The provisions related to the CBO are now more expansive and now cover the authority to regulate digital banks and investment banks. The CBO can also now establish and own companies, and the CBO and the companies established by it are exempt from all taxes imposed on capital, property, profits, reserves, currency issuance and other operations it carries out in implementation of the tasks and functions assigned to it (Section 2 of the New Banking Law).

Conditions and Timelines of Obtaining a Banking License:

Conditions- PJSC Requirement: While the conditions of obtaining a banking license remain relatively similar, a noticeable change is the requirement to take on the form of a public joint-stock company before submitting an application for a banking license. The New Banking Law has made being a public joint-stock company a prerequisite for the application for a banking license (Article 53 of the New Banking Law).

Timelines: The CBO now must decide on an application for banking license within 90 days from the date on which the application is complete (120 days under the Old Banking Law). This also applies to licenses being granted to branches. A lack of response from the CBO within the 90-day period is deemed acceptance of the application (Article 55 of the New Banking Law).

Representative Office: A foreign bank not licensed in Oman may now open a representative office, provided it obtains a license from the CBO to do so, a fee is paid, and certain conditions are adhered to, which include:

• It cannot have a branch in the Sultanate of Oman.
• Its activity is limited to studying markets and investment opportunities and acting as a link between its main office abroad and banks in Oman.
• It cannot engage in Banking, financial activities or any other activities in the Sultanate of Oman subject to another regulatory authority.
• The representative office is subject to the control and supervision of the CBO (Article 63 of the New Banking Law).

Capital and Reserve Requirements

Minimum Capital Requirements for CBO: The minimum capital requirement for the CBO has been increased from OMR 250 Million under the Old Banking Law to OMR 1 Billion under the New Banking Law (Article 33 of the New Banking Law).

Minimal Capital Requirements for Banks: The minimum capital requirement for domestic banks has also been increased from OMR 20 Million to OMR 100 Million. The minimum capital requirement for foreign banks has been changed from OMR 3 Million to a general reference to policies determined by the CBO. Article 75 of the New Banking Law).

Mandatory Cash Reserves: The CBO is empowered under the New Banking Law to set mandatory cash reserves and additional reserves to protect depositors, enhancing financial stability (Article 76 of the New Banking Law).

Dealing in Securities:

Banks require prior approval from the CBO if they wish to obtain a license from the Financial Services Authority to carry out activities related to securities. Examples of securities activities provided are financing companies and projects, investment brokerage, investment advisory services, investment management, underwriting of stock issues, trust and fiduciary services, and brokerage activities. While these activities were banking activities under the Old Banking Law, and each banking activity needed to be specifically authorised under the banking license, this approval was a practical requirement under the Old Banking Law. The New Banking Law makes it clearer that prior approval of the CBO is to be taken before obtaining a license from the Financial Services Authority. The article provides that the CBO is to issue instructions in this regard (Article 60 of the New Banking Law).

Digital Bank and Islamic Banking

Introduction of Digital Banks: The New Banking Law introduces a definition for digital banks (a licensed bank conducting banking activities through digital platforms or channels using modern technological techniques) and provides that digital banks are to be regulated by the CBO pursuant to rules and provisions yet to be issued by the CBO.

Comprehensive Islamic Banking Framework: Like its predecessor, the New Banking Law provides a detailed framework for Islamic banking, including provisions relating to licensing, Sharia governance, and specific financial instruments like sukuks. The provisions under the New Banking Law remain relatively similar to the Old Banking Law, with some minor adjustments. Under Article 130 of the New Banking Law, Islamic banks can now establish and own special purpose vehicles. Under Article 129 of the New Banking Law, the CBO may allow conventional banks to convert Islamic windows into local Islamic banks through its subsidiaries.

Financial Institutions:

Prior to the New Banking Law, financial institutions were mostly regulated by numerous circulars issued by the CBO. The New Banking Law now defines and regulates financial activities carried out by financial institutions. Under Article 136, financial activities include:

• Financing and financial leasing.
• Carrying out money services activities, including exchange activities, making transfers, cashing and collecting checks, transfers and other negotiable instruments.
• Buying, selling and exchanging foreign and local currency or any other assets in the form of money, coins or bullion.
• Providing banking and financial operations services, electronic and financial technology.
• Provide credit and financial information services.
• Carrying out crowdfunding activities based on loans.
• Any other activities approved by the CBO.

Under Article 137, financial institutions may also participate in banking activities, provided they obtain a separate license to do so from the CBO. Reporting requirements that apply to banks under the New Banking Law also apply to financial institutions, and financial institutions are under a strict confidentiality obligation, even after the relationship with the client has ended. Disclosures are permissible with express instructions from the CBO, with the client’s express consent, in implementation of the New Banking Law, and if required under a judgement issued by a court.

Confidentiality and Client Protection

Stricter Confidentiality Requirements: The New Banking Law imposes stricter confidentiality requirements and introduces penalties for unauthorized disclosure of client information. Banks, members of the bank’s board, current or former officials or employees, and any third party to whom activities have been assigned are under a strict requirement to not disclose any information relating to a current or former client of the bank, or take any actions relating to a bank account, credit or trust deposit, or a banking transaction (Article 98 of the New Banking Law).

Exceptions under Article 98 are as follows: (i) express permission or instructions are received from the CBO; (ii) express written consent from the client is received; (iii) a judicial order or ruling is issued by a court in Oman; (iv) the disclosure is within the framework of providing credit and financial information services; (v) the disclosure is in accordance with the law; (vi) the disclosure to the Beneficiary is due to the rejection of the check and within the limits of its value; and (vii) the disclosure is for a bank taking steps to recover its debts or prove its right against the client, or in a legal dispute that arose between it and the client concerning a banking transaction

Penalties: Penalties for advertising, presenting, or promoting licensed activities in a misleading/incorrect manner, or for collecting using, or retaining client information for purposes other than those for which it is licensed imprisonment, may be imprisonment for a period of not less than three months and not more than six months, and/or a fine of not less than OMR 3,000 and not more than OMR 10,000 (Article 239 of the New Banking Law).

Enhanced Client Protection: It is now a statutory provision that banks are required to provide clear and transparent information about their products and services, ensuring fair treatment of clients. This includes not imposing any measures to prevent clients from becoming clients of other banks/financial institutions, providing sufficient information about their products and services and ensuring they are provided with quality, transparency, and fair treatment, setting out their terms and conditions in a clear manner, and publishing a list of prices for the products and services it provides (Articles 99 to 102).

Extension of time for Retention of Acquired Assets

Any real estate or movable assets acquired by a bank in settlement of debt or through judicial sales, needs to be disposed of by the bank within twenty four (24) months from the date of such acquisition, unless extended annually at the discretion of the CBO (as opposed a time period of twelve (12) months under the Old Banking Law) (Article 86 of the New Banking Law).

Reorganisation, Change in Control, Suitability of Key Stakeholders:

Reorganisation and Change in Control: The New Banking Law provides that banks and other concerned parties must inform the CBO of any natural or legal person ownership of 5% or more, and not exceeding 10%, of the voting shares or equivalent in the bank. It also requires banks and other concerned parties to inform the CBO of any material information that may adversely affect the suitability of a shareholder holding an influential or controlling stake in the bank, and the suitability of the chairman, directors, executive officers, general managers, deputies, and any other officials as may be specified by the CBO (Article 69 of the New Banking Law).

Governing Senior Personnel: Under Article 120 of the New Banking Law, no appointment of the chairman, board members, executive officers, general managers, their deputies, and any other employees specified by the CBO is effective unless approval from the CBO is obtained. This is a change from the Old Banking Law where, under Article 77(b), the CBO had the right to object to such appointment. The presumption under the New Banking Law is that the appointment is not valid until approved by the CBO, whereas under the Old Banking Law, the presumption was the appointment was valid unless objected.

Evidentiary Provisions:

Article 4 of the New Banking Law provides that a copy of entries made in the regular or electronic books of banks and financial institutions can be considered evidence of the validity of those entries before the court, as well as the licensed activities related to them. This is subject to certain conditions being met, namely (i) the entry is made within the usual books or records of the bank of financial institution; (ii) the registration procedure is carried out in those books and records during normal working hours; (iii) the entry has been made in the books and records in possession of the bank or financial institution, and can be proven by the employees of the bank or financial institution; and (iv) the copy of the books and records has been properly audited and is correct, which can be proven by an employee of the bank or financial institution or any other person who audited the copy comparing the copy to the original.

Bank Liquidation and Dissolution

Early Intervention: Both the Old Banking Law and the New Banking Law provided for a bank’s dissolution, either through voluntary winding up or through involuntary dissolution by the CBO. The New Banking Law has, however, expanded the powers of the CBO with respect to the liquidation and dissolution of the bank, and has also introduced an early intervention mechanic. Under Article 213 of the New Banking Law, if a bank violates the New Banking Law or any regulations, decisions, and instructions issued by the CBO, if the CBO believes the bank’s position is unsafe or unsound, or if the CBO believes it necessary to achieve the objectives of the CBO, the CBO may impose administrative penalties under Article 232 of the New Banking Law, and take certain actions which include:

• Preventing the bank from carrying out some operations or imposing restrictions on the work the bank carries out.
• Enhancing governance, risk management, internal control and accounting policies.
• Having the bank comply with additional regulatory requirements.
• Establishing additional provisions and reserves or increasing paid-up capital.
• Reducing, ordering the recovery of, or preventing the bonuses and benefits granted to members of the board of the bank, managers, and other employees.
• Submitting and implementing a corrective plan or a restructuring plan approved by the CBO.
• Prohibiting the distribution of any profits or financial benefits to shareholders and others.
• Obtaining prior approval from the CBO before carrying out transactions or practising specific activities.
• Closing some of the bank’s branches or selling some of its activities, contributions or shares in its subsidiaries.
• Temporarily suspending or excluding one or more members of the BOD or its employees, or imposing an administrative fine on them.
• Dissolving the board of directors of the bank, and the CBO assuming its management through its employees or through contractual procedures.
• Merging the bank with another bank.

Priority of Payments: The liquidation process under the New Banking Law is broadly similar to the Old Banking Law. The priority of payments has been amended slightly, and is now as follows:

• Unpaid monthly wages for workers within the limits of 3 months or OMR 10,000), whichever is less, in addition to any unpaid claims related to their other entitlements.
• Claims of the fund established to insure and protect bank deposits as a guarantor of those deposits, which includes the net amount due to be paid to depositors as determined by the Fund, instalments due to be paid to the Fund, loans and advances due to the Fund and any other dues to the Fund.
• All CBO claims.
• Claims of other creditors of the Bank under liquidation, including the rights of depositors not covered by the law regulating the insurance and protection of bank deposits.

Administrative Sanctions and Penalties

The New Banking Law has consolidated penalties into one chapter.

Administrative Sanctions: The New Banking Law has introduced administrative sanctions under Article 232 for violations of the New Banking Law and any regulations, decisions, instructions, and circulars issued by the CBO which includes the issuance of a notice, the instruction to remove the violation within a timeline stipulated by the CBO, imposing a fine of a maximum of OMR 200,000 on banks and OMR 50,000 on financial institutions, imposing a fine on the revenue or profit, suspending or cancelling a licensed activity, suspending a license, cancelling a license and public disclosure of violations.

Judicial Police: Certain designated employees of the CBO are now given the status of judicial police with respect to crimes related to their work.

New Penalties: Penalties (between OMR 1,000 and OMR 3,000) and/or imprisonment (between 3 to 6 months) can now be imposed for defacing or tampering with the currency, obstructing its circulation or acceptance, or trading in invalid currency. Penalties have also been introduced under Articles 237, 238, and 239 for violations of client confidentiality, incorrect reporting or hindering inspections, and misleading or false advertising of activities and the collection, use, or retention of client data for purposes other than its licensed activities.

Increase in Penalty Amounts: Penalty amounts have also generally increased. For example, under Article 235, a violation of the prohibition on using the word “bank” if the entity is not practicing banking activities is now punishable by a fine of between OMR 1,000 and OMR 5,000 for each day of the violation – under the Old Banking Law, it was punishable by a fine of between OMR 100 and OMR 250 for each day of the violation. Similarly, under Article 236, conducting banking activity in Oman without a banking license is punishable by imprisonment of between 3 months and 3 years, and/or a fine of between OMR 250 and OMR 600 for each day of the violation (along with confiscation of devices and equipment as well as closure of place of business) – under the Old Banking Law, it was punishable by imprisonment of between 10 days and 3 years, and a fine of between OMR 100 and OMR 250.

Conclusion

The New Banking Law represents a significant overhaul of the regulatory framework for banking and financial institutions in Oman. It introduces modern provisions for digital and Islamic banking, enhances regulatory oversight, and strengthens client protection measures. Stakeholders in the banking and financial sectors must carefully review and adapt to these changes to ensure compliance and capitalize on new opportunities.

How We Can Help

Banks and other entities governed by the CBO have 6 months to conform to the changes in the New Banking Law. Our team in Oman represents a range of stakeholders in the banking & finance space, and regularly advises on compliance with banking laws and regulations. We would be delighted to assist.