It is no longer a projection to say that the UAE is heavily investing in creative industries, including culturally based products. Investments in the museum sector—such as the Abu Dhabi Louvre, Zayed Museum, Future Museum, and others—are clear indicators of full dedication to promoting art as a future economic input. Therefore, the exchange of artworks between museums, galleries, collectors, and venue operators has become a business reality to ensure that the art market remains sustainable. As such, lending and securing artwork is an embedded solution to ensure the stability of transactions between parties. The question here is whether we have a legal infrastructure to support this kind of business activity.
In the UAE, artwork is generally not considered a financial security under current laws. Here’s a breakdown of how this is understood within the legal and regulatory framework.
The UAE Securities and Commodities Authority (SCA) defines financial securities in Federal Law No. 4 of 2000 and subsequent updates. These typically include:
- Shares and bonds issued by joint-stock companies
- Instruments issued by the federal government or local governments
- Investment fund units
- Options, futures, and other derivatives
- Sukuk (Islamic bonds)
These are standardized, tradable financial instruments—not physical or collectible items.
Is Art Considered a Security?
Artwork—whether a painting, sculpture, or installation—is a tangible asset or collectible, and not a standardized or regulated financial instrument. The UAE regulator, like many others around the world, does not classify artwork as a form of security from a financial services perspective. Although some regulators recognize artwork as a non-depreciating asset that can offer strong value as collateral, it is still not considered equivalent to bonds or debentures. However, there are exceptions in certain structured or tokenized formats:
- Art Investment Funds
If artwork is pooled into a fund and fractionalized (i.e., shares of the fund are sold), the fund itself might be classified as a Collective Investment Scheme, which is a regulated security. Such a fund would require approval and licensing from the SCA or the DFSA (Dubai Financial Services Authority), depending on jurisdiction. - Tokenized Art / NFTs
If artwork is converted into a digital asset or NFT (non-fungible token), its classification depends on:
a. How it’s structured
b. Whether it grants profit rights or behaves like a share
If marketed as an investment product, in some cases, NFTs might be treated as virtual assets and regulated under the VARA (Virtual Assets Regulatory Authority), though not as traditional securities.
Can You Use Artwork as Collateral for a Loan Under UAE Law?
Yes, artwork can be used as collateral for a loan in the UAE under certain legal and commercial frameworks, but it’s not as common or straightforward as other asset classes like real estate or shares. Here’s how it works under UAE laws.
Type of Collateral
Under Federal Decree Law No. 4 of 2020 on Securing Rights in Movable Property, the UAE allows movable assets (not just real estate) to be used as security interests for loans. This includes:
a) Tangible movable property (e.g., artwork, collectibles, vehicles)
b) Intangible assets (e.g., receivables, bank accounts, intellectual property)
So, artwork is legally considered a form of movable property and can be pledged as collateral. To validly use artwork as collateral in the UAE:
- Security Agreement
A written agreement between the borrower and the lender is required, describing the artwork and the terms of the pledge. It should include the loan amount, rights upon default, etc. - Registration with Emirates Movable Collateral Registry (EMCR)
The pledge must be registered with the EMCR, a federal registry system for security interests in movable assets. This ensures priority and enforceability of the lender’s claim. - Possession or Control (Optional)
Unlike older laws, the lender does not need to take physical possession of the artwork—a non-possessory pledge is allowed. However, in practice, lenders may prefer to hold the artwork in custody or escrow to mitigate risk.
While legally possible, using artwork as loan collateral faces several practical hurdles:
- Valuation Risk
- Liquidity Risk
- Fraud / Authenticity Issues
- Storage & Insurance Concerns
Can it be registered as a Movable Collateral under which authority?
Artwork can be registered as movable collateral in the UAE under Article 3 of Federal Decree Law No. 4 of 2020 (on Securing Rights over Movable Property). The Emirates Movable Collateral Registry (EMCR) is the official authority responsible for this registration.
Therefore, based on Federal Decree Law No. 4 of 2020 and Cabinet Decision No. 29 of 2021 (which applies across the UAE, excluding DIFC and ADGM that have their own frameworks), artwork can be used as collateral.
To secure such a transaction, a written agreement between the borrower and the lender must detail the artwork and loan terms.
- Description of Artwork
The artwork must be uniquely described (e.g., artist’s name, title, dimensions, provenance, serial number if available). This ensures it is identifiable for enforcement and third-party notice. - Create an Account on EMCR
File a Notice of Security Interest and submit a financing statement with key data, including:
I. Names and ID of both parties
II. Description of artwork
III. Loan terms (optional)
IV. Duration of the security interest
Enforcement & Protection
Once registered, the lender has a priority right over the asset if the borrower defaults. The registry provides public notice to third parties, preventing double pledging or disputes.
If the loan or collateral is arranged within a free zone with its financial regulator (such as ADGM or DIFC), its legal framework would apply.
Therefore, while artwork is not a regulated financial product, it can form a collateral base once properly registered.
Conclusion
The UAE’s legal landscape continues to evolve alongside its ambitions to become a global hub for art, culture, and creative industries. While artwork is not classified as a financial security under current UAE regulations, it can still serve as a valuable form of collateral when structured and registered appropriately. Federal Decree Law No. 4 of 2020, along with the Emirates Movable Collateral Registry (EMCR), provides the necessary legal infrastructure to facilitate such transactions.
However, leveraging artwork as collateral remains a complex endeavor, often hindered by valuation uncertainty, enforceability concerns, and practical challenges around storage, authenticity, and liquidity. As the UAE deepens its investments in cultural capital, further clarity and innovation in legal and financial mechanisms will be essential to unlocking the full potential of art as an asset class.
In conclusion, while not yet mainstream, the use of artwork as collateral in the UAE is legally viable—and likely to gain traction as the market matures and the demand for alternative financing models increases.
Disclaimer
This publication does not provide any legal advice, and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal, or other decisions. Therefore, any reliance on such material is strictly at your own risk.
