In March 2022 the Financial Action Task Force (FATF), responsible for leading global action to prevent money laundering and global terrorist financing, listed the UAE as a ‘grey zone’.
The FATF maintains a list of countries that are ‘grey’ listed, or ‘jurisdictions under increased monitoring’, and ‘black’ listed ‘jurisdictions subject to a Call for Action’.
After implementing a raft of legislative and regulatory measures, as well as increasing enforcement for non-compliance, the UAE was removed from the ‘grey’ list in February 2024. These measures included 22.6 million AED of fines on companies not complying with Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (AML/CFT) requirements. The UAE established a committee and an independent enforcement unit for AML/CFT matters, strengthened existing legislative frameworks, and established an AML/CFT reporting platform for financial institutions to streamline the process of reporting suspicious transactions.
While AML/CFT measures only comprise a small corner of international financial regulation, the UAE’s ability to swiftly bring in measures to address weaknesses in the regulatory framework speaks to the agility of the country’s response to key global financial regulatory issues.
While increased regulation is not typically welcomed by businesses and organisations, regulatory compliance with the international financial regulation has many benefits for nations, as well as the organisations they nurture.
The first, and arguably most important, benefit of the framework for international finance regulation is often taken for granted. This is the function of standardising banking standards. The Basel Accords and International Financial Reporting Standards provide common benchmarks across the global finance sector which facilitates more stability and confidence in the market.
The second benefit of international financial regulation is cost efficiency. Standardised application of international regulation (regulatory harmonisation) also provides efficiencies in the financial system which reduce costs to organisations. With standardised regulatory requirements, organisations can reduce compliance costs. It is easier to comply with one set of rules across different jurisdictions, than several different regulatory frameworks in each distinct jurisdiction—a lesson that UK businesses are discovering post-Brexit.
The third benefit of compliance with international finance regulation is enhanced risk management and increased investor protection. Fostering confidence in the UAE business environment will increase investor confidence and facilitate more investment in the jurisdiction.
While there are many benefits to strong international financial regulation, there is an argument that it does not benefit everyone equally. Emily Jones and Peter Knaack of the Blavatnik School of Government, University of Oxford, note that organisations such as the Basel Committee on Banking Supervision (BCSC), authors of the BASEL standards, are dominated by G20 countries. They are ‘standard-makers’. They argue that this creates a dynamic whereby ‘core’ countries and the focus on financial stability can have negative impacts on financial inclusion in ‘peripheral’ countries or low and lower middle income countries (LMICs). These countries are ‘standard-takers’. Jones and Knaack point to the AML rules, among others, which provide challenges for developing countries for many reasons, including their more limited access to official banking systems which leads to the emergence of shadow banking.
The UAE stands in a unique position, as a centre for international investment and trade from within the ‘periphery’. As an observer of the BCSC, the UAE and its geographical, political, and economic positioning provide an opportunity to negotiate the challenges faced by the many developing countries with which they foster close ties. For example, the recent announcement of the rollout of the Jaywan card in the UAE (an extension of the popular RuPay payment system in India) stands to increase financial inclusivity for Indian residents in the UAE by reducing cross-border transaction costs and processing fees.
International financial regulation is a key part of a rules-based global order bringing many benefits to compliant countries. The UAE has signalled its strong commitment to this rules-based order and now has the opportunity to act as an intermediary between ‘core’ countries and the ‘peripheral’ countries that face challenges in participating fully in the global financial market. In this way, the UAE is situated to not just be a ‘standard-taker’ in international financial regulation, but a game changer.
By Dr Tracie Lea Scott, assistant professor at Heriot-Watt University, Dubai.
