Negotiating international finance like swimming in alphabet soup

The response to the financial crisis of five years ago has spawned a huge infrastructure of increasing complexity.

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Dodd-Frank, AML, Basel III, Fatca, CFT, KYC … confused? You have every right to be.

This jumble of acronyms and codes gives a flavour of the increasing complexity under which the international financial system, and its regulators, have to labour these days.

Nobody expects sympathy for bankers, of course, but even ordinary mortals must appreciate that the response to the financial crisis of five years ago has spawned a huge infrastructure of increasing complexity which, the professionals believe, has made the job of looking after our money more onerous, less efficient and – threateningly – more risky.

As a banker these days, once you have negotiated the Wall Street Reform and Protection Act (short-handed to Dodd-Frank) you will have to ensure the bank complies with global anti-money laundering laws (AML), stay within the new rules of the international Committee on Banking Supervision (Basel III), adhere to the US Foreign Account Tax Compliance Act (Fatca), avoid the strict regime on combating the financing of terrorism (CFT), and above all, you must know your client (KYC).

That’s more rules and regulations than even a master of the universe should have to deal with.

Many participants at the Middle East Banking Forum in Dubai this week were of the opinion that this enormous workload was damaging their businesses, hindering international trade and holding back global economic recovery.

Against the backdrop of billions of dollars worth of fines recently levelled by international regulators for forex market-fixing, sanctions-busting and other transgressions, regional bankers agreed that some kind of tipping point had been reached in the balance between regulation and good business practice.

Of course the system, defects and all, should address the conditions that nearly brought about a total financial collapse in 2009 – but the Byzantine nature of current regulation is on the verge of becoming counterproductive.

Worse, in the words of one speaker, it was filling professionals and policymakers with a false sense of security that the real risk of another economic downturn could be somehow mitigated by recourse to a new rule book.

Who is to blame? Regulators everywhere, especially in Switzerland, Brussels and Frankfurt. But bankers in the Middle East are overwhelmingly convinced that the Americans are responsible for the rise of the “rock star” regulatory system and the dangers it poses.

Asked simply who is causing the most problems for regional banks, some 81 per cent unhesitatingly hit the button marked “USA”.

It is the Americans who, through their domination of the global financial system via the dollar-controlled foreign exchange markets, are impeding regional trade and economic growth. Over the past decade, the combination of 9/11, Arab Spring, Iran sanctions and financial crisis has made the Middle East the target of American financial imperialists, many thought.

The mood of the forum was encapsulated in one question from the floor: “Why should the region comply with US regulations?”

Saeed Abdullah Al Hamiz, assistant governor of the UAE Central Bank in charge of supervision, went some way to answering that question in his opening address. “Ethics and good behaviour of the banks is integral to the reputation of and public confidence in the banking system, and can never be overstated,” he said.

The bankers nodded in agreement at the principle, but Mr Al Hamiz went on to outline why regional banks have every reason to be robust in their response to American criticism: the rapid recovery of the UAE banks after 2009; the high levels of liquidity in and capital adequacy in regional banks; and the emergence of Islamic finance as an international force in finance, heavily promoted by the UAE.

The industry still faces challenges, such as the growth of digital banking and the decline of the traditional branch network; the constant and related need to meet higher standards of customer service expectations; and the need to provide more support for small-to-medium enterprises, where the UAE is lagging behind regional standards.

But the impression that emerged was of a self-confident and assertive regional banking industry, in contrast to the self-obsessions of European bankers or what was seen as the politically influenced agenda of the Americans.

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