Compliance tops the agenda at the first Business Forum UAE
The first ever Business Forum UAE brought together more than 160 senior representatives from the UAE’s banking and financial industry to discuss the pressing challenges of cyber threats, de-risking and compliance.
Osama Al Rahma, CEO Of Alfardan Exchange and Chairman of FERG (Foreign Exchange and Remittance Group), gave the keynote speech. He stressed the need to mitigate the impact of de-risking by financial institutions in mature markets. Banks around the world are reducing their correspondent banking relationships with a focus on perceived higher-risk countries, including the UAE. This means that more and more banks are losing access to international financial networks and products.
Al Rahma noted that banks in mature markets are re-evaluating their cross-border activities to manage risk. “De-risking has affected many regional banks and financial institutions in the Middle East,” he said. “While regulators in mature markets encourage banks to look at risk management at the level of the financial institutions, correspondent banks are applying de-risking to an entire country or even region.”
“The impact of de-risking from a whole country in the way it is done at the moment will negatively affect global trade,” continued Al Rahma. “SWIFT, a non-profit banking cooperative that is developing sector standards, is supporting the financial community in dealing with the challenge of de-risking in a more realistic and responsible way. It is helping financial institutions become more transparent and giving them the tools and systems to assist them in meeting their regulatory and compliance requirements.”
SWIFT, a non-profit banking cooperative that is developing sector standards, is supporting the financial community in dealing with the challenge of de-risking in a more realistic and responsible way.
– Osama Al Rahma, CEO Of Alfardan Exchange and Chairman of FERG (Foreign Exchange and Remittance Group)
A culture of compliance
Our first panel took a closer look at the motives behind and consequences of de-risking in the region.
Nicolas Willard, Head of Compliance Solutions EMEA for SWIFT, noted that there are various factors leading to de-risking. “Banks in the region are de-risking due to high costs as a result of increased regulation but also lack of transparency in terms of financial crime compliance.”
Waheed Rathore, Chief Compliance Officer at Abu Dhabi Commercial Bank, said that banks have always been in the business of taking risk and de-risking. This used to be for financial reasons, however, now de-risking is taking place for non-financial reasons. “It is about the number of questions we need to answer about each customer. Banks constantly have to defend their on-boarding decision with visits, due diligence and monitoring, which means capital and resources need to be allocated. De-risking is now taking place due to changes in regulation and in risk appetite.”
Victor Matafonov, Group Chief Compliance Officer at Emirates NBD, outlined the potential impact of de-risking on UAE banks’ day-to-day activities. “Unless banks are deemed to be compliant, they risk losing their USD-EUR clearing capabilities. Given the region’s strong connections with oil, which is priced in dollars, how many banks could live without the USD clearing capability?”
He added that banks need to take several measures to mitigate the ‘risk of de-risking’. “Banks need to start preparing for increased levels of regulation. Implementing Financial Action Task Force (FATF) standards is a good first step. Banks should also have a proactive relationship with their correspondent banks and show that systems are being improved such as their sanctions screening and KYC systems.”
Christos Christou, Chief Compliance Officer at Lulu International Exchange, explained that the challenge is greater for exchange houses. “Exchange houses are seen as being higher risk. To combat this view, we are investing in technology and doing everything to abide by regulations and the FATF standards. We give the correspondent bank whatever it wants in terms of messages and transactions. Most importantly we are investing in training and creating a compliance culture from within.”
Spotlight on the regional economy
Alp Eke, Chief Economist at the National Bank of Abu Dhabi, gave an economic overview of the region. He noted that the oil price has collapsed before, so the recent price drop is nothing new. “The UAE was the first to respond in 2015 to the price drop. Saudi Arabia has also responded with their 2030 vision,” he said. “The 1984 oil price crash was followed by 15 years of low oil prices. I believe we will see a long period of USD55-60 per barrel. This should stabilise the market.”
He then outlined what the UAE has done to diversify its economy with a focus on tourism and real estate. The UAE is seen as a safe haven, he added, and this is indicated by an increasing number of Arabic investors in the region.
FinTech – just hype?
Another discussion focused on the future of payments in the Middle East, and asked speakers whether FinTech and blockchain could have a real impact on the payments industry, or if it is just hype.
Haytham El Maayergi, Global Head of transaction Banking at Abu Dhabi Islamic Bank, argued that new technology is here to stay in the payments sector. “Earlier this week the US began recognising FinTech companies as acting similarly to banks. Abu Dhabi is also looking at how to regulate FinTech companies. There will be some hype around new technologies, but they have a solid future.”
Emre Karter agreed that new technology will disrupt the industry, but it will take time due to the many challenges around scalability and resilience. “Bitcoin cannot currently handle the required speed for transactions,” he said. “It can only process several transactions per second, while other players are capable of around 4,000 per second and higher.”
FinTech faces additional challenges around regulation. “What will the industry standard be and what happens if something goes wrong? How will government entities be involved?” Karter continued. “This is not yet defined – and we are an industry that does not easily come together and agree on things.”
Ramana Kumar, Managing Director & Head of GTB Business and product Management at the National Bank of Abu Dhabi, sees the customer as the main driver in innovating payments. “The customer needs money as quickly as possible. This is the most important thing. However, currently it is sometimes quicker to drive to a place than to transfer money,” he said. “The banking industry uses regulation as an excuse, but hiding behind regulation will not work. Corporates need to be able to send payments within minutes.”
The banking industry uses regulation as an excuse, but hiding behind regulation will not work. Corporates need to be able to send payments within minutes.
– Ramana Kumar, Managing Director & Head of GTB Business and product Management, National Bank of Abu Dhabi
El Maayergi noted that SWIFT is in a good position to deliver the required services to customers. “SWIFT’s Global Payments Innovation (gpi) Initiative is a step forward,” he said. SWIFT gpi is designed to improve the customer experience in correspondent banking by providing faster, same-day transactions, increasing transparency and predictability and providing end-to-end tracking of cross-border payments,” Karter agreed. “SWIFT gpi initiative brings a lot of daylight liquidity to the market.”
Investors shaping the market
Kapil Seth, Managing Director & Regional Head of HSBC Securities Services, talked about the challenges being faced by the securities markets in the region. “2014 was a peak year, but trading activity has almost halved since then,” he said. “We need to move away from dependency on oil. The UAE is less dependent than other countries in the region and this is evident in how investors perceive it. They are investing money in the market.”
“Investors are shaping the market,” Seth continued. “They are putting pressure on regulators and requesting global best practices. And regulators are responding to their demands.”
Investors are shaping the market. They are putting pressure on regulators and requesting global best practices. And regulators are responding to their demands.
– Kapil Seth, Managing Director & Regional Head of HSBC Securities Services
Managing cyber risk
Cyber-attacks are becoming more sophisticated, better organised and better funded. The threat is real and is becoming increasingly challenging for the financial community. The UAE has reacted strongly to the threat. As a result, in this year’s Global Cybersecurity Index, which measures aspects such as legislation, regulation and compliance, capacity building and international cooperation, the UAE ranks 17th in the world.
Viji Mohan, Head of Information & Physical Security Assurance at NBAD, said that cybercrime can have significant impacts on business in the form of reputational damage, business disruption and commercial loss.
Sandro Buccianeri, Head of the Information Security Division at Abu Dhabi Commercial Bank, talked about the bank’s strategy to combat cybercrime. “We’ve implemented a new strategy,” he said. “First we work out what the threats are. Then we prevent, detect and respond. How quickly we respond will save us from a breach in security. Education is vital. We carry out training for the whole staff.”
Leo Punt, Deputy Chief Executive of EMEA, SWIFT, outlined what SWIFT is doing to support the community in combatting cybercrime. “SWIFT has launched a dedicated programme,” he said. “The Customer Security Programme aims to improve information sharing throughout the community, enhance SWIFT-related tools for customers and provide control and assurance frameworks. We are also sharing best practices for fraud detection and enhancing support by third party providers.”