HDFC Bank’s Dubai International Financial Centre (DIFC) branch has recently been placed under regulatory restrictions by the Dubai Financial Services Authority (DFSA). On Saturday, the bank announced that it received a decision notice from the DFSA, which bars the branch from onboarding or soliciting new clients. This move signals a significant regulatory intervention shaped by concerns around the branch’s financial advisory and client onboarding practices.
The DFSA’s order specifically prohibits the DIFC branch from engaging in a range of financial services aimed at new clients. These banned activities include advising on financial products, arranging investment deals, arranging credit facilities, and providing custody services. Additionally, the branch is restricted from making financial promotions directed at potential new customers. However, the restrictions do not extend to existing clients or those who were previously offered financial services but had not yet been fully onboarded. The DFSA’s directive is to remain in force until it is formally amended or lifted in writing.
The regulatory concerns stemmed from issues observed with the DIFC branch’s handling of customers who were not fully onboarded and broader problems linked to the branch’s onboarding process itself. The DFSA’s scrutiny highlights the critical importance of strict compliance with financial service regulations, particularly in jurisdictions like DIFC, which operates under a stringent regulatory framework designed to protect investors and ensure transparency.
From HDFC Bank’s perspective, the operations of its DIFC branch represent a relatively small part of its overall business and financial standing. As of September 23, the branch serviced 1,489 customers, which included joint account holders. Despite the limited scale, the bank acknowledged the seriousness of the situation and confirmed that it has already taken steps to comply with the DFSA’s directives. HDFC Bank expressed its commitment to cooperating fully with the DFSA’s ongoing investigation and addressing the regulatory concerns promptly.
This regulatory action is linked to a broader controversy that has been unfolding for the past two years concerning the alleged mis-selling of high-risk Credit Suisse additional tier-1 (AT1) bonds. Investors accused HDFC Bank of aggressively promoting these bonds through its UAE operations, a network that included advisory from DIFC officials, relationship management by staff in its Dubai representative office, and account booking at its Bahrain branch. The AT1 bonds were ultimately written down in 2023 during Credit Suisse’s financial collapse, which resulted in substantial losses for many investors, particularly wealthy non-resident Indians, some of whom also faced margin calls on leveraged positions.
The regulators’ investigations have centered on whether the clients were correctly onboarded within DIFC, a jurisdiction that enforces separate, more rigorous financial rules, especially for “professional clients.” This heightened scrutiny reflects the regulatory emphasis on ensuring that financial products, particularly complex or high-risk investments like AT1 bonds, are sold appropriately and with full compliance to onboarding standards that safeguard investors.
In summary, the DFSA’s decision notice against HDFC Bank’s DIFC branch marks a significant regulatory step addressing concerns about the branch’s financial service activities and client acquisition methods. While the restrictions do not affect existing customers, they underline the need for strict adherence to regulatory frameworks in global financial hubs such as Dubai. HDFC Bank’s ongoing cooperation with the DFSA and its efforts to remediate the situation will be closely watched by the financial community and stakeholders involved.
