In a significant win for the GCC state, the United Arab Emirates (UAE) has bid farewell to the increased monitoring and scrutiny of the global financial crime and anti-money laundering watchdog, the Financial Action Task Force (FATF).
In a statement released on 23 February 2024, the FATF noted the UAE's "significant progress" in improving its financial compliance regime and removed from the UAE from its list of “jurisdictions under increased monitoring” – the so-called “grey list".
Exiting the “grey list" comes as a welcome boost to investor confidence. Being on the “grey list" meant it was harder for UAE businesses to enter into cross-border transactions as financial institutions would often need to carry out enhanced country-level due diligence which in turn prolonged deal timelines and led to higher compliance costs.
The UAE had been placed under closer scrutiny back in March 2022, and was added to FATF's “grey list", owing to the “strategic deficiencies” in its measures to counter money laundering and terrorist financing. Removal from the grey list required the country to implement a number of increased compliance and anti-money laundering measures, and the UAE has since taken "robust actions and ongoing measures" to (i) ensure its financial system is well-equipped to tackle any AML/CFT risks, and (ii) demonstrate its commitment to upholding global standards of financial integrity and stability.
Key to this success has been the regulatory initiatives it has taken over the past couple of years, and the UAE's concentrated efforts were recognised by FATF towards the end of 2023, with notable examples including:
- the New UAE Federal Penal Code (Federal Law No. 31 of 2021, as amended through Federal Decree – Law No. 36 of 2022), being the key legislation on corruption and bribery regulations; and
- the adoption of new anti-money laundering regulations pursuant to the recent SCA Rulebook amendment.
As the UAE continues to strengthen its regulatory framework and enhance cooperation with international partners, the announcement comes at the perfect time to solidify its position as a leading destination for investment, innovation, and business opportunities in the Middle East.
The UAE has firmly established itself as a major player in the global investment stage, with its investment arms undertaking a wide range of ventures across the world. Exiting the “grey list" will also significantly boost the UAE's investment outflow into the global markets.
The UAE already leads the chart for foreign direct investment outflow from the Gulf Cooperation Council region, with India being one of the leading destinations. India and the UAE's enduring economic partnership is one of the oldest and most successful. The geographic proximity of the UAE to India has played a significant role in fostering investment ties. The recent decades have witnessed the partnership between the two countries reaching new heights due to the strengthening of political alliance between the UAE and India. In fact, India has seen an uptick in investment from the UAE during the past year with the UAE ranking in the top five of FDI providers to India.
While India has seen an increase in investment from the UAE in the recent past including private equity and sovereign wealth funds pumping capital into India, the country’s removal from the “grey list" is likely to bolster such investment especially into regulated sectors such as non-banking financial companies (NBFC). For example, currently investments in NBFCs from a FATF non-compliant jurisdiction would not be considered at par with those from compliant jurisdictions, as investors from or through non-compliant FATF jurisdictions are barred from acquiring ‘significant influence’ in the investee company.
This certainly marks a step in the right direction for the UAE and the FATF's decision is a welcome recognition of the UAE’s targeted effort to make its anti-money launder/countering financing of terrorism regime robust and in line with international standards. Given the UAE’s position as major international and regional financial hub, its exit from the “grey list" is a major step in its economic growth ambitions.
As a firm with over three decades of experience in the UAE and a strong understanding of the Indian market and regulatory framework, our experts are well placed to guide businesses on the implications of these changes, or any other wider legal and practical issues Please get in touch with our India Desk or our UAE teams for further information.
