The Middle East, at a crossroads between Europe, Africa, and Asia, is playing an increasingly global role on the financial scene.
Today, the United Arab Emirates (UAE) serves as a financial hub in the region, with commerce, banks, and fintech operating out of Abu Dhabi and Dubai. UAE fintech is also leading in the region, with a market value of $ 2.5 billion in 2022, according to figures from the UAE Ministry of Economy. The UAE is also a major player in the remittance market with about 90 percent of the country’s total population foreign workers or expats.
Amid this boom, the UAE financial community was hit with a blow in February 2022, when the country was placed on the “grey list” of the Financial Action Task Force (FATF), the global anti-money laundering watchdog, for countries in need of “increased monitoring” of their AML/CFT regime. The deterioration to the grey list highlights the vulnerability of the UAE as a corridor for illicit transactions and sanctions evasions, notably with several other neighbors on the grey list (Jordan, Turkey, Syria, Yemen) and even blacklisted (like Iran). These issues are undoubtedly a concern for other neighbors as well such as Saudi Arabia and Bahrain.
On the bright side, countries on the list actively work with the FATF to address strategic deficiencies in their system to fight money laundering, terrorist financing, and other financial crimes.
Indeed, the UAE has made a high-level commitment to work with the FATF to strengthen the effectiveness of its AML/CFT system and resolve the identified strategic deficiencies within agreed timeframes under tighter supervision. The FAFT is expecting an improvement in areas such as the number and quality of STRs; greater use of financial intelligence to pursue high-risk ML threats; and proactively identifying and combating sanctions evasion, including by demonstrating a better understanding of sanctions evasion.
As part of this effort, the UAE is also proposing to establish a national committee to allow sharing of strategic information and intelligence between the public and private sectors on suspected money laundering and terrorist financing activities, as well as develop best practices to fight financial crime.
On a recent visit to the region, I met with new customers and prospects to discuss how to use AI technology as a tool to help solve their AML challenges and better position them to transform into significant players in the regional and global financial market and growing fintech ecosystem.
Here are my impressions on how Middle East and North Africa FIs can benefit from adopting AI:
Middle East banks and fintech are looking to grow business and boost connectivity to the global financial system. As noted, they are faced with unique challenges due to their relative proximity to risky areas, exposing them to manipulation by sanctioned entities and terrorist groups using front non-listed entities.
By adopting AI-based solutions they are going to be better positioned to deliver effective and efficient AML programs. Using AI, true criminal financial activity can be detected in a timely manner, enabling compliance and FIUs to take quick action.
Therefore, by adopting AI, banks and fintech can instill trust into their operations, enabling them to onboard new customers that would be considered risky, and form relationships with financial institutions that would otherwise reject them. In this way, these FIs can accelerate growth and revenues, and expand the business into new areas and with new partners.
Open doors to growth
Once establishing trust by adopting a sophisticated AI approach to AML, the doors open to growth and new revenue streams. Fintechs and banks alike can expand their business into new areas and with new partners.
Financial services and jurisdictions considered as higher risk can be added to operations. With unsupervised and semi-supervised AI, unknown and emerging threats can be detected in a timely manner, giving fintech and banks the confidence to grow.
Today, the FATF is not just recommending, but prescribing the use of advanced technology to implement a risk-based approach that can improve AML/CFT efforts. Specifically, according to the FATF, artificial intelligence-based tools can analyze data accurately and help better identify emerging risks. Moreover, according to the FATF, technology has the potential to make efforts to combat money laundering and terrorist financing (AML/CFT) faster, cheaper, and more efficiently.
The use of AI-based, machine learning is therefore a smart way to handle AML today that can make a positive impact on AML programs, by strengthening the effectiveness and making high-risk ML threats a priority – this per the action plan to get off the grey list.
Improve risk coverage.
Using AI-based detection can detect new financial crime typologies and unknowns in their earliest stages. With new forms of cyber-automated financial crime surfacing constantly, having the most advanced AI-based technology will enable Middle East FIs and Fintechs to stay a step ahead and develop their platforms with confidence.
AI-powered technology for AML, especially “unsupervised” machine learning, learns the financial behavior of each customer, builds “normal” profiles, and detects unusual cases. In this way, hidden risks and “unknown unknown” typologies can be uncovered within the data. As a result, AI helps increase risk coverage and significantly reduces exposure to de-risking and fines.
In summary, as the Middle East becomes a key to the global economy- countries, economies and specifically-the financial sector is an important infrastructure, growth is dependent on trust between the regional players, the global banks, and regulators.