The UAE is tipped to come off the Financial Action Task Force’s (FATF) “grey list” on February 23 after nearly two years, signifying the country’s impressive progress in addressing shortcomings in its anti-money laundering (AML) and counter-terrorist financing (CTF) measures.
The impending delisting promises broader economic benefits including a major fillip to the investment landscape of the Arab world’s second largest economy. It will boost investor confidence in the UAE’s financial system, potentially attracting more capital inflows to funds managed within the jurisdiction, analysts said.
For asset managers and fund managers considering the jurisdiction, this development could have several positive implications as the delisting underscores the UAE’s commitment to maintaining financial integrity and ensuring economic stability on the global stage, reflecting the critical nature of continuous reform and compliance efforts.
The UAE’s exit from the grey list may lead to a more stable and predictable regulatory environment for asset and fund managers operating in the UAE, says John Kartonchik, senior Director – Regulatory & Compliance Services, at Re/think, a business advisory firm.
In his blog, Kartonchik observed that with the development, the UAE’s reputation may improve, which could attract more investment and business opportunities for asset and fund managers. “This may also enhance the reputation of the UAE’s financial sector and reassure investors, including asset managers and fund managers, about the country’s commitment to combating financial crimes.”
“Investors often prefer jurisdictions with strong AML and CTF frameworks to mitigate risks associated with financial crimes. The removal from the FATF grey list could boost investor confidence in the UAE’s financial system, potentially attracting more capital inflows to funds managed within the jurisdiction. Investors, including asset managers and fund managers, may feel more secure and comfortable conducting business in a jurisdiction that has been deemed compliant with international AML/CFT standards by the FATF,” he said.
Other positive outcomes include expanded market access as some investors and institutions may have restrictions or compliance requirements related to investing in jurisdictions on the FATF grey list. The removal of the UAE from this list could eliminate such barriers, opening up new opportunities for asset and fund managers to access global markets and investors while encouraging international financial institutions to establish or expand their presence in the country, thereby broadening the scope of potential clients and investment opportunities for asset and fund managers.
This grey list, known formally as Jurisdictions under Increased Monitoring, includes countries that are actively collaborating with the FATF to address and rectify deficiencies in their AML, CTF, and anti-proliferation financing frameworks. Being on the grey list signifies a country’s dedication to resolving identified issues and its agreement to undergo intensified scrutiny.
The UAE found itself on the FATF grey list in March 2022, following the Mutual Evaluation Report (MER) released in April 2020, which called for urgent action to address the criminal financial flows attracted by its status as a major financial and trading hub. Since its listing, the UAE has taken significant steps towards enhancing its AML/CFT compliance. The Central Bank of the UAE has been taking stringent measures against companies for violating AML regulations. It has penalised many exchange houses and banks for not adhering to the regulations.
The FATF’s October 2023 Plenary highlighted several critical reforms undertaken by the UAE, including an enhanced understanding of ML/TF risks, improved risk-based measures to prevent the misuse of legal entities, increased financial intelligence capacity, and more effective enforcement of targeted financial sanctions. In a statement, FATF had said the UAE made progress in areas such as facilitating money-laundering investigations, imposing sanctions on non-compliance at financial institutions, and increasing prosecutions.
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