UAE’s removal from Financial Action Task Force’s grey list to spur investor confidence

The UAE’s removal from the Financial Action Task Force’s grey list on Friday after significant reform progress will lead to an improvement in investors’ trust and confidence, analysts said.

The immediate benefit would be an improvement in investors’ trust and confidence in the UAE, leading to an increase in more sustainable capital, foreign direct investment and portfolio flows, according to Nasser Saidi, head of consultancy Nasser Saidi and Associates.

This move will also support the expansion of both the domestic banking and financial sectors as well as the international financial free zones, as wealthy global investors and foreign businesses become more comfortable investing in the UAE, given its adoption of international laws and conventions, he explained.

Another major beneficiary will be the asset and wealth management activities of UAE-based family offices, he said.

“The UAE’s removal from the FATF grey list is a testament to the country’s political will and willingness to improve overall governance, transparency and disclosure of the banking and financial sector, address weaknesses alongside increasing its ability to deter illicit money flows [via the Executive Office for Anti-Money Laundering and Counter-Terrorism Financing], enhancing its ability to undertake financial investigations and extraditions of financial criminals among others,” Mr Saidi added.

“However, it is important that the UAE continues on its journey in adopting and implementing international best practices and standards, continuously strengthening its financial regulatory regime, including AML/ CFT.”

Removing a country from the FATF grey list signifies heightened confidence from the international community that the country has reduced its exposure to financial crime and money laundering risk. This will positively impact the UAE’s ability to transact with other jurisdictions, said Jonny Bell, director of financial crime compliance and payments at LexisNexis Risk Solutions.

This could result in various benefits, including heightened foreign investment into the UAE, expanded international trade facilitated by improved credit agreements, decreased dependence on foreign lending and reduced exposure to money laundering, he added.

The decision to take the UAE off the watchdog’s increased monitoring list was made after a comprehensive on-the-ground review of the Arab world’s second-largest economy. It was placed on the grey list in 2022.

Barbados, Gibraltar and Uganda were also removed from the grey list, while Kenya and Namibia were placed on it.

The FATF, a global body that combats money laundering and terrorism financing, said: “The FATF plenary congratulated Barbados, Gibraltar, Uganda and the UAE for their significant progress in addressing the strategic AML/CFT [anti-money laundering and combating the financing of terrorism] deficiencies previously identified during their mutual evaluations.”

“These jurisdictions had committed to implement an action plan to resolve swiftly the identified strategic deficiencies within agreed time frames. These countries will no longer be subject to the FATF’s increased monitoring process.”

The UAE’s removal from the FATF’s grey list is expected to facilitate a more streamlined foreign currency exchange without the need for excessive scrutiny, according to Vijay Valecha, chief investment officer at Dubai-based Century Financial.

Both businesses and individuals alike might incur lower fees for remittances and international payments, he said.

It will also help sustain the UAE’s momentum of attracting FDI in various sectors, which bodes well for economic diversification and overall business growth, he added.

"Prominent Wall Street banks have a large presence in the UAE. These entities will likely save a lot of money on hefty compliance costs now that the UAE is no longer placed on the FATF’s grey list," Mr Valecha explained.

"It will also eliminate the need to outsource some operational functions to other countries with lower costs."

Exiting the grey list ensures unrestricted access to financial markets and maintains strong correspondent banking relationships, which, in turn, lowers borrowing costs, explained Bhavin Shah, anti-financial crime expert and managing director of Secretariat Advisors.

It also reinstates trust within the global business community in the UAE's ability to combat financial crimes effectively, he added.

The UAE has a great reputation globally and it was a shock to be put on the grey list, but the government has taken action swiftly and effectively, said Barnaby Crompton, founder and chief executive of Crompton Partners Estate Agents, a real estate broker.

“For those who were sceptical about the UAE being on the grey list, to now be removed just adds another level of security and appreciation for the country as a whole,” he said.

“Good sentiment drives markets. I fully anticipate an increase in investors and people moving here. You can expect more financial institutions and more people in the finance industry to look at the UAE positively now.”

On Friday, Hamid Al Zaabi, director-general of the Executive Office for Anti-Money Laundering and Counter-Terrorism Financing, told state news agency Wam that the Emirates plays a leading global role in combating financial crimes.

The UAE has established a sophisticated monitoring and reporting system using digital tools and involving more than 90 national entities, he said.

The country has also increased the number of mutual legal assistance treaties and has so far signed 45 treaties, with more to be signed this year, according to Mr Al Zaabi.

In the area of financial information exchange, the UAE sent 200 outgoing MLAT requests between January and October 2023 to allow investigations into terrorist financing, money laundering and predicate crimes, Wam reported.

“The designated non-financial businesses and professions sector achieved a 266 per cent increase in suspicious transaction activity reports, while the real estate sector increased its STRs by 106 per cent,” Mr Al Zaabi said.

“The corporate service providers and trust funds sector achieved a 49 per cent increase in STRs.”

The value of fines imposed by UAE regulatory authorities in the field of AML/CFT between January and October reached Dh249.2 million ($68 million), compared with Dh76 million in 2022, a three-fold increase, the executive said.

In terms of targeted financial sanctions, regulatory authorities collected more than Dh10 million in fines between July and October 2023.

“The UAE’s next national strategy on AML/CFT, covering 2024-2027, will be launched in the coming months,” Mr Al Zaabi said.

“The results and recommendations of the latest National Risk Assessment, which began last year with support of the World Bank, are also expected to be announced later this year.”

The board of directors of the Abu Dhabi-headquartered Union for Human Rights Association said the FATF’s announcement is a recognition of the UAE’s success in strengthening its international financial and investment position, Wam reported.

“It raises the level of trust and reliability in the stability and development of the country, as it embodies the exceptional effort made by various state agencies and all civil society institutions,” it added.

A study conducted by the International Monetary Fund in 2021 revealed that once a country is placed on the FATF's grey list, it generally results in a decline in capital flows of as much as 7.6 per cent of its GDP, of which FDI accounts for 3 per cent.

However, the UAE largely bucked this trend even when it was placed on the grey list in March 2022.

The total value of FDI into the UAE increased 10 per cent year on year to $22.7 billion in 2022, according to Mr Valecha.

"Since then, the UAE leapfrogged to second place globally after the US in attracting new foreign investment projects in 2023. This marks a 28 per cent surge in project announcements, solidifying its position as a top destination for FDIs," he said.

"As such, the UAE’s prospects have received a boost after its removal from the FATF’s grey list."