Why coming off the FATF grey list means stronger trade for the UAE

Initially added to the list on March 4, 2022, due to identified shortcomings in combating money laundering and terrorist financing. The country’s removal reflects the significant steps it’s taken to enhance its regulatory framework, including the establishment of specialised AML courts and improved compliance measures across its financial sectors.​

Previously, inclusion on this list had restricted the UAE’s full potential in global trade and financial relations. Increased compliance costs, delayed financial transactions, deterred foreign investments, and strained banking relationships all cast a shadow over its economy and put a strain on international business operations, but the removal signals a restored confidence in the UAE’s financial system.

As the UAE sheds these constraints, it opens the door to lowered transactional costs and a stronger appeal to global investors. However, the journey ahead remains complex. Despite this milestone, the UAE continues to navigate challenges in completely normalising international financial relationships, with ongoing rigorous scrutiny expected from global financial entities and upcoming FATF evaluations.

This development does not instantly resolve all challenges associated with global financial compliance. While the delisting heralds potential economic opportunities, it’s crucial to understand the ongoing complexities and necessary actions still required.

Continued vigilance and compliance

The UAE’s efforts to strengthen its AML/CFT frameworks have been recognised internationally, leading to its removal from the grey list. However, this is far from the end of the road. The international financial community’s trust needs to be nurtured continuously. Enhanced due diligence by some international partners might persist, reflecting lingering cautiousness about AML/CFT risks. These entities may require more time and evidence of sustained compliance before fully adjusting their risk assessments related to the UAE.

Financial institutions are likely to require more detailed documentation and verification of business activities, sources of funds, and the identities of beneficial owners before approving transactions, particularly in major financial hubs such as the US, UK and members of the European Union, where regulatory compliance standards are particularly stringent. They may also conduct more frequent and thorough audits of transactions involving UAE entities to ensure compliance with AML/CFT standards.

Adjustments in risk assessments by these international entities may not be immediate. Historical data shows that it can take up to five years for countries to rebuild trust and verify the effectiveness of their AML/CFT measures post-delisting, so continuous efforts will be crucial.

This will involve regular refinement of legal frameworks, so the UAE is able to effectively track and manage cross-border transactions. It will also mean implementing robust systems for the monitoring and public reporting of suspicious activities. Investment in technological advancements, such as AI and big data analytics are already well underway and will help with monitoring and enforcement capabilities as well as preempting potential compliance issues before they arise.

Ultimately, it’s about shifting perceptions, which will be a gradual process. This means that while some benefits of delisting, such as improved investment flows and reduced transaction costs, are anticipated, they may not materialise instantly.

Upcoming evaluations and long-term commitments

The UAE will inevitably face continuous scrutiny, particularly with the upcoming fifth round of FATF evaluations in 2026 which will require year-long preparations. This will involve an exhaustive review of the country’s financial systems and controls and coordination across various sectors – banking, real estate, precious metals, and others – to ensure that all are compliant with the FATF guidelines. It also means continuous updates to the legal framework to close any gaps that might be exploited.

The broader impact of the UAE’s removal from the grey list will also depend on external factors beyond its direct control such as geopolitical dynamics, fluctuations in global oil prices, or changes in international relations which could all impact the UAE’s financial sector and will necessitate a proactive and adaptive approach to manage new risks as they arise.

That said, the delisting carries promising possibilities.

Unlocking new potential

With enhanced AML/CFT measures in place, real estate transactions are likely to see an increase in participation from international banks more willing to finance large-scale developments, knowing the origin of funds can be verified more reliably.

Mergers and acquisitions involving UAE companies could also accelerate, as foreign entities feel more confident in the financial systems that govern these transactions. For instance, previously, a European company might have hesitated to acquire a UAE-based tech startup due to the risk of financial non-compliance. With stronger AML/CFT regulations, there’s an increased assurance that the financial practices of the UAE company align with international standards.

UAE-based startups may also have an easier time accessing funds with the likelihood of more venture capital flowing into the country.

Investors from major financial centers like New York or London, who previously might have been cautious, can now engage more freely, encouraged by the increased transparency and compliance standards. This shift could lead to a significant influx of funds, particularly in innovative sectors such as tech, fintech, and green energy, where startups typically need high levels of funding to scale.

Trade financing is another area that stands to gain significantly. Financial institutions that previously may have been cautious about facilitating trade finance for UAE companies may now offer more competitive rates and lower collateral requirements for companies exporting goods from the UAE. This change could particularly benefit sectors such as petrochemicals, precious metals, and textiles, which often require large-scale financing to manage their extensive supply chains.

Prospects ahead: UAE’s post-grey list economic outlook

The UAE’s removal from the FATF grey list has already yielded positive results and marks a significant milestone in its journey toward global financial compliance. While this achievement opens doors to new opportunities and increased investor confidence, it also signals the beginning of a continuous journey of vigilance, adaptation, and commitment to upholding robust AML/CFT frameworks.

As the UAE navigates the complexities of international financial relations and prepares for upcoming evaluations, it must remain proactive in addressing emerging risks and seizing the potential for growth across various sectors. This will ensure its sustained progress and appeal to foreign investment.