HDFC Bank confirmed on Saturday that its Dubai International Financial Centre (DIFC) branch has received a decision notice from the Dubai Financial Services Authority (DFSA), barring it from onboarding or soliciting new clients. The directive prevents the branch from engaging in key financial services such as advising on products, arranging deals in investments, arranging credit, and offering custody services to new customers.
According to the regulator, the prohibition will remain in place until explicitly revoked or amended in writing. Importantly, the order does not impact the bank’s existing customers or those already offered services but yet to be fully onboarded.
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Concerns Over Onboarding Process
The DFSA highlighted issues in the DIFC branch’s practices, particularly around financial services extended to customers who were not fully onboarded. The concerns prompted the regulator to impose preventive restrictions while continuing its investigation.
As of September 23, the DIFC branch served 1,489 clients, including joint account holders. HDFC Bank clarified that this unit’s operations are not material to its overall financial performance or business strategy.
Bank’s Response to the Restrictions
In its official statement, HDFC Bank said it has already initiated corrective steps to align with DFSA’s directives. “The bank is committed to work with the DFSA in its ongoing investigation and to promptly remediate and address the concerns raised at the earliest,” it said.
The bank emphasized that the DIFC branch’s limited size and scope mean the restrictions will not significantly affect its consolidated business position.
Background: Link to Credit Suisse AT1 Bond Controversy
The DFSA action comes against the backdrop of a two-year-old controversy surrounding alleged mis-selling of high-risk Credit Suisse additional tier-1 (AT1) bonds. Wealthy non-resident Indian investors had accused HDFC Bank of pushing AT1 bonds through its UAE operations, including advisory from DIFC staff, relationship management via the Dubai representative office, and account booking through its Bahrain branch.
When Credit Suisse collapsed in 2023, these bonds were written down completely, leaving investors with significant losses and, in some cases, facing margin calls on leveraged positions. Regulators began investigating whether DIFC clients were properly onboarded under its stricter “professional clients” framework, triggering greater scrutiny of the bank’s compliance.
Conclusion
While the restrictions mark a regulatory setback for HDFC Bank’s DIFC branch, they underscore the rising compliance expectations for global financial institutions operating in Dubai’s jurisdiction. The bank’s swift response and ongoing cooperation with the DFSA will likely determine how quickly the restrictions are lifted.
