UAE Regulator Halts New Client Onboarding at HDFC Bank’s Dubai Branch Amid Compliance Probe

India’s largest private sector lender, HDFC Bank, has been temporarily barred from onboarding new clients at its Dubai International Financial Centre (DIFC) branch by the local financial regulator, the Dubai Financial Services Authority (DFSA). The directive, effective immediately, comes as the DFSA continues its investigation into the branch’s client onboarding procedures and its practices around providing financial services.

According to a notice received by the bank, the DIFC branch is prohibited from soliciting or engaging in any business with new clients that constitutes a financial service. This ban specifically covers activities such as advising on financial products, arranging deals in investments, arranging credit, providing custody services, and making financial promotions to new customers. The restriction will remain in force until it is formally amended or revoked in writing by the DFSA.

The regulatory action stems from concerns raised by the DFSA regarding the branch’s dealings with customers who were allegedly not fully onboarded in compliance with DIFC regulations, as well as general lapses identified in its client onboarding process.

The scrutiny on HDFC Bank’s UAE operations is closely linked to an ongoing controversy surrounding the alleged mis-selling of high-risk Credit Suisse Additional Tier-1 (AT1) bonds. Investors, many of whom are wealthy non-resident Indians, have claimed that they were improperly advised and sold these complex instruments, which were wiped out during Credit Suisse’s collapse in 2023. This wider case has brought the bank’s cross-jurisdictional operating model under regulatory focus, with specific concerns over whether clients were correctly classified and onboarded as ‘professional clients’ under the DIFC’s stricter rules, which are separate from the broader UAE legal framework.

In an official statement, HDFC Bank acknowledged the DFSA’s decision, emphasizing that the operations of its DIFC branch are not “material” to the bank’s overall business or financial standing. As of a recent date, the branch was reported to have 1,489 customers. The bank has also clarified that the regulatory prohibition does not affect its ability to continue servicing its existing clients.

HDFC Bank further stated its commitment to complying with the directives and confirmed it has already “initiated necessary steps” to promptly address and remediate the concerns flagged by the DFSA as part of the ongoing investigation.

This measure underscores the UAE’s strong stance on regulatory compliance and its ongoing efforts to enforce rigorous standards, particularly within financial free zones like the DIFC, to safeguard investor interests and maintain the integrity of its financial system.