Reliability and Stability of Economic Systems
Any successful economy rests on the pillars of its compliance and banking systems, as most economic transactions require a stable and reliable banking system that can only be stable and reliable through an efficient compliance framework.
Despite the UAE being a relatively new country, it has managed to incorporate stringent protocols to ensure safety for each and every transaction. Notably, the absence of either can cause significant disruptions in a country’s vital systems.
This was evident during the Great Financial Crisis (GFC), which was primarily caused by a lack of due diligence in KYC procedures, leading to clients defaulting on their mortgages. Consequently, banks around the world have tightened their policies and regulations.
Banking compliance measures primarily focus on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), both aimed at preventing money from illegal sources from being used for illicit activities. Money earned through illegal means often leads to economic bubbles that distort the value of commodities in markets, thus, the crackdown on finances is crucial.
In Conversation with Shariq Ansari
We spoke with Shariq Ansari, the banking and compliance manager of the RadiantBiz business consultancy based in the UAE, to understand the country’s on-the-ground complexities and measures.
Ansari has over a decade of experience; he has worked with notable UAE banks including Mashreq Bank. His work involves scrutinizing business documents and qualifying them for banking requirements. Having worked with multinational corporations, SMEs, and startups, he has faced all possible challenges arising in the banking industry.
In 2022, the UAE was placed on the Financial Action Task Force (FATF) grey list due to its weak policy enforcement. However, within two years the country managed to get off the list allowing it to regain the trust of international banks and lower additional steps and scrutiny of its transactions.
How were these changes for the businesses in the UAE? According to Ansari, the initial change of the UAE being grey-listed led to slower business transaction processes which had to be combated by opening bank accounts with international banks and utilizing alternative financial channels like fintech and online payment platforms.
All of which was tedious, hence, getting off the grey list was much needed. Even though the change required more regulations and reforms, leading businesses to redo certain processes, it has been worthwhile in the long run, easing international transactions and enhancing protection against fraudulent activities.
Golden Visa & Foreign Investments
Moreover, the UAE has introduced the 10-year-long residency Golden Visa which has an assigned category for bank deposits that also have to adhere to the standard compliance policies including KYC and AML checks. Additional adherence requirements involve a source of funds verification and tax residency proof.
Other than the bank deposit category, the investors and property ownership category of the Golden Visa has multiple compliance requirements. There has been a significant inflow of foreign funds due to different political conflicts which has had regulatory authorities on their toes.
About this, Shariq Ansari briefed us about how real estate investments have majorly involved banks through mortgages and escrow accounts, with such high demand for such services banks have increased vigilance. Furthermore, many banks have even reduced their exposure to the real estate sector.
With the UAE Central Bank imposing strict limits on banks’ lending, the commercial banking sector has remained in check during this real-estate boom, avoiding the repetition of mistakes during the GFC.
Innovations & Regulations
Evidently, the rise of cryptocurrency and virtual asset transactions has increased globally. With a new industry becoming part of the financial sector, there has been a lot of uncertainty and prudence on the part of established financial institutions which have been skeptical of the innovation.
But the UAE, unlike the rest of the world, became the first country to accommodate the industry by introducing a specified legal framework for the industry back in 2018. This was done by the capital city’s Financial Services Regulatory Authority (FSRA) which was then followed by Dubai establishing the Virtual Assets Regulatory Authority (VARA) in 2023.
Consequently, the UAE has become a crypto hub with businesses from the industry flocking to the country. However, has the financial security of the country’s financial sector been compromised? Ansari deemed the legal policies and regulations of FSRA and VARA more than sufficient to secure the integrity of the country’s financial systems.
Although the UAE Central Bank has restricted banks from facilitating crypto transactions and reluctance by banks to integrate virtual assets into their business, they remain open to partnering with regulated fintech platforms and exchanges to participate in the market.
Tech Detection
Other than the crypto industry being a new element, there has been the entry of Artificial Intelligence (AI) which has been revolutionizing every industry in the world. What have its contributions been to the banking compliance department?
Banking compliance specialist, Ansari, stated that it has been a great tool as it has been helpful in fraud detection, KYC processes, Regulatory Tech (RegTech), reporting, and policy review. All of these have improved and eased the work of professionals and further secured the financial sector.
As AI streamlines processes, it raises the question of whether compliance specialists will be replaced. We asked Ansari to clear these suspicions to which he eloquently declared the purpose of AI is to serve humans just like calculators or MS Excel which did not nullify the job of an accountant, similarly, AI is here to aid our work process.
He further elaborated that certain unskilled jobs do get replaced when technology advances such as telephone operators but they were not eliminated as even today we have customer support agents i.e., their work has changed which is why any employee needs to train and learn new skills as their career progresses.
Banking compliance or compliance in general, is a specialized skill job that requires constant training and retraining as laws and regulations are updated. The finesse of the job lies in picking on different nuances of each individual or business and figuring out whether their unique structure follows the law.
Overall, technology and humans have to come together to prevent illicit and fraudulent activities. The UAE has done an exemplary job in integrating high technology and recruiting the best compliance specialists to lower the possibilities of financial crime for which it has succeeded and gained FATF approval.
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