Introduction to FATF and UAE

Whether or not the UAE grey list is on and off has been a recurrent topic for over a decade. It appears that it is out for good. This publication addresses first of all what FATF is, what FATF’s grey list is and the benefits for the UAE as a country and its banking.

What is the FATF, to start?

The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 by the G7 countries to develop policies to combat money laundering. Its mandate expanded in 2001 to include efforts to combat terrorist financing. Headquartered in Paris, the FATF sets international standards aimed at preventing illegal activities such as money laundering, terrorist financing, and the proliferation of weapons of mass destruction.

The FATF has 39 members, including major financial centers and regional organizations. It works through a collaborative process of peer reviews, known as mutual evaluations, to assess how well its member countries implement its recommendations. The FATF also monitors the progress of member countries in implementing necessary measures and holds them accountable by placing those with strategic deficiencies on lists such as the grey list or the more severe black list.

What is the FATF’s grey list, as a second start?

The FATF’s grey list, also known as the “Jurisdictions Under Increased Monitoring” list, includes countries that have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing but have committed to addressing these deficiencies within agreed timeframes.

Being on the grey list means that the country is actively working with the FATF to resolve identified issues and implement necessary reforms. While grey-listed countries are not subject to the same level of countermeasures as those on the FATF black list, they are still subject to increased scrutiny and monitoring to ensure progress is being made.

The UAE was previously on the FATF grey list. However, the country was removed from this list on February 23, 2024. This removal followed significant efforts by the UAE to strengthen its financial regulations and enhance its compliance framework.

What are the benefits following the UAE’s removal from FATF’s grey list?

The removal of the UAE from the FATF grey list is expected to bring several significant benefits, enhancing the country’s economic and regulatory landscape:

Increased Investor Confidence

The removal signals to international investors that the UAE has robust measures in place to combat financial crimes. This can lead to increased foreign direct investment (FDI) as investors feel more secure about the regulatory environment​

Boost in Economic Growth

With enhanced regulatory compliance, the UAE is likely to see smoother cross-border trade and increased capital inflows. The improved regulatory framework will facilitate economic activities, thereby driving economic growth​.

Reduced Compliance Costs

Being on the grey list often requires additional compliance measures and reporting, which can be costly for businesses. Removal from the list reduces these burdens, allowing businesses to operate more efficiently and at lower costs​.

Improved International Relationships (Following the UAE grey list exit)

The UAE’s enhanced regulatory status can improve its relationships with international financial institutions and regulatory bodies. This can lead to better correspondent banking relationships and more favorable credit agreements​.

Enhanced Global Credibility

The UAE’s efforts to address FATF’s concerns demonstrate its commitment to maintaining a transparent and effective financial system. This enhances its global credibility and reputation as a secure place for financial activities.

Support for Strategic Economic Goals

The removal aligns with the UAE’s broader economic strategy to position itself as a leading global trade and investment hub. The country can leverage its geographical advantages and robust infrastructure to attract multinational corporations and investors​.

Strengthened Regulatory Framework

The steps taken to get off the grey list, such as establishing a special court for financial crimes and enhancing anti-money laundering (AML) measures, have permanently strengthened the UAE’s regulatory framework. This will help prevent financial crimes in the future​.

Economic Diversification (Consequence of UAE FATF grey list exit)

Enhanced investor confidence and better regulatory compliance can support the UAE’s ongoing efforts to diversify its economy away from oil dependence, attracting investments in other sectors such as technology and real estate.

Overall, the removal from the FATF grey list positions the UAE for sustained economic growth and development, improving its attractiveness as a destination for global trade and investment.

What about potential banking improvements?

The removal of the UAE from the FATF grey list has several implications for the banking sector.

First, banks in the UAE will find it easier to establish and maintain correspondent banking relationships with foreign banks. When a country is on the grey list, foreign banks may view it as high risk, leading to stricter scrutiny and even termination of correspondent relationships. Removal from the list will help restore and strengthen these relationships​.

Second, UAE banks will have better access to international financial markets. The grey list status can create barriers to entry and increase the cost of international transactions. Removal from the list reduces these barriers, facilitating smoother and more cost-effective transactions​.

Third, UAE banks will face lower compliance costs. Enhanced monitoring and reporting requirements imposed by the FATF grey listing can be resource-intensive and costly. With the removal, these banks can redirect resources towards other strategic initiatives​.

Fourth, the removal boosts confidence among international investors and counterparties, leading to increased investment and business opportunities. This is particularly beneficial for banks involved in trade finance, investment banking, and other cross-border financial services​.

Fifth, a more stable and trusted banking sector supports broader economic goals, including diversification and sustainable growth. Banks play a crucial role in financing new ventures and facilitating economic activities across various sectors​.

Sixth, the measures implemented to achieve removal from the grey list, such as enhanced anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, lead to a stronger regulatory environment. This strengthens the overall integrity of the financial system and helps prevent financial crimes.

Conclusion to UAE FATF Grey List

Changes at FATF level do not take place overnight. The UAE has been working for decades on aligning itself with international standards.

The expected ultimate removal from the grey list is expected to boost investor confidence, increase foreign capital inflows, and reduce compliance costs, thereby enhancing the UAE’s attractiveness as a global trade and investment hub​.

Banking wise, the removal from the FATF grey list positively impacts the banking sector by improving international relationships, reducing compliance burdens, and enhancing confidence among investors and counterparties.

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We hope this post will help you understand the implications for the UAE being removed from the FATF’s grey list and remain available for any questions regarding this post of general application.

For more information published in English you can visit all our publications at this link as well as the videos in English of our Managing Partner Maria Rubert.

*The information on this page is not intended to be legal advice. This article is intended to provide an initial introduction to the implications for the UAE being removed from the FATF’s grey list.