While the UAE’s anti-financial crime framework has come under increased monitoring of late, the Financial Action Task Force (FATF) has recognised the positive progress made towards the country’s efforts to counter anti-money laundering and terrorism and proliferation financing.
The Executive Office of Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) has firmly repeated its stance on identifying and eliminating financial crime networks, which, in line with the UAE’s National Action Plan, underpins the country’s position as an attractive global business centre that operates in line with international standards.
The Dubai Financial Services Authority, which serves as the independent regulator of financial services conducted in or from the Dubai International Financial Centre, is entirely aligned with the UAE’s stand on financial crime. To this end, the provision of all-rounded regulation is at the core of the DFSA.
Over the past five years, the DFSA has witnessed significant evolution in the financial services regulation sector in the UAE.
While in the past the focus was largely on the development of best-practice legislation and regulations that serve businesses in the financial services industry, the mandate for the DFSA and for other regulators across the UAE has since advanced.
Today, innovation plays a key role in the very formulation of legislation, calling for the provision of safe regulatory environments that are suited to new ways of doing business.
Rapid innovation within the sector is challenging supervisors to provide much more than frameworks that guide businesses, attract investors and protect financial services consumers.
Lessons learnt from financial crises and stock market crashes have created the need for principles-based regulatory approaches, which are more adaptable to changes in economic conditions, enable innovation and support new business formation.
Increased investments and trade in virtual or digital assets, however, places greater emphasis on addressing money laundering, terrorist financing and proliferation financing risks arising from these activities.
Combating money laundering, terrorism and proliferation financing
Efforts to identify and tackle financial crime are of utmost importance even as the UAE makes large strides in being a major international financial centre.
Since the FATF Mutual Evaluation Report of the UAE was published in April 2020, the UAE has taken significant steps to align regulatory, supervisory and enforcement frameworks further with the FATF Recommendations.
The DFSA has been actively contributing to supporting national efforts to prevent or combat financial crimes, with an increasing focus on money laundering, terrorism financing and proliferation financing (ML/TF and PF) risks.
The DFSA has also participated in the discussions and policy works of the various national AML/CFT and CPF committees and sub-committees.
To this end, the DFSA’s systematic assessment of risk allows us to identify common issues across our regulated companies. Leading up to the evaluation of the UAE’s compliance levels with FATF standards, the DFSA made a series of policy amendments to bring its AML/CTF and CPF framework into further alignment with the FATF's recommendations for 2021.
Our recently published Financial Crime Prevention Programme report 2019-2021 highlights the key efforts made by the DFSA and DIFC Authority’s Registrar of Companies (RoC) to prevent abuse of the financial system in the UAE.
International assessors have shared favourable views recognising the DFSA’s efforts in developing a detailed understanding of ML/TF risks and in applying effective and dissuasive sanctions against both companies and individuals.
Recent DFSA enforcement actions against several big companies ranging from banks to private equity firms accused of financial misconduct, corruption and money laundering have resulted in companies and individuals being named and held accountable for their wrongdoings.
Heavy fines and severe restrictions have been imposed, acting as a strong message and credible deterrent to others from engaging in similar misconduct.
These enforcement actions taken by the DFSA against entities that have engaged in misconduct have led to better regulatory outcomes. On one hand, companies in the wrong have co-operated to rectify their compliance failures, putting in place stronger internal risk assessment controls and due diligence processes, while raising compliance awareness at organisation-wide levels.
On the other, subjecting financial institutions and companies in the DIFC to higher levels of scrutiny fosters a stronger culture of compliance and transparency.
Protecting the financial ecosystem’s integrity in the UAE
Ultimately, the regulation of financial services is an ever-evolving process of checks and balances, which involves working closely with companies and individuals in the DIFC to educate them about, and mitigate, financial crime risks. Compliance obligations should be proportionate to the mitigation of risks.
Keeping in mind the fine line between over and under regulation, the DFSA undertakes assertive efforts ranging from monitoring programmes to thematic reviews, as well as compliance assessments, underpinned by intensive and sustained cycles of supervision.
Increased accountability and stronger internal controls mean companies within our regulatory jurisdiction are more likely to have in place measures to prevent corruption, financial mismanagement and the more serious crimes linked to money laundering and terrorism and proliferation financing. This effectively limits the risks that companies and individuals can take, resulting in a more transparent and compliant financial ecosystem.
Moreover, as new innovations continue to disrupt the UAE’s financial services sector, giving rise to a rapidly expanding interest in virtual assets and virtual asset service providers, the DFSA has also moved to regulate this space.
Collaboration with our regional and global peers to enhance our alignment with international financial crime prevention standards will remain a top priority.
As the country moves forward with its ambitions to become a digital economy, the DFSA will continue to contribute towards establishing the UAE as a thriving global financial centre through innovative regulations.
Waleed Saeed Al Awadhi is chief operating officer of DFSA