BENGALURU: The UAE currently faces significant economic challenges due to financial crime, with a reported GDP loss of 9.32 per cent, the highest globally.
The alarming statistic underscores a critical disparity: despite the extensive financial losses attributed to illicit activities, spending on compliance measures remains disproportionately low. According to a study conducted by Napier AI in collaboration with GlobalData, the situation is somewhat similar in Saudi Arabia, where the GDP loss to financial crime is recorded at 5.74 per cent.
The ongoing challenges posed by financial crime have prompted a closer examination of the efficacy of anti-money laundering (AML) and counter-terrorist financing (CFT) strategies.
The Napier AI/AML Index stands as a pivotal resource in this regard, providing comprehensive insights into the impact of artificial intelligence (AI) on financial crime compliance.
The index ranks 35 global markets based on their effectiveness in addressing financial crime, revealing that while the UAE has adopted a business-friendly approach to AI regulation, there remains room for improvement in compliance spending.
In April 2022, the UAE launched its Digital Economy Strategy, which aims to diversify and expand its GDP from 9.7 per cent to an ambitious 19.4 per cent over the next decade.
The initiative aligns with broader aspirations akin to Saudi Arabia’s Vision 2030, where fostering innovation and supporting business-friendly regulatory frameworks are paramount. Nevertheless, for these advancements to bear fruit, financial institutions in the UAE must actively engage in transformative compliance reforms that resonate with the regulator’s vision.
Leveraging AI
Greg Watson, CEO of Napier AI, said the potential economic gains from leveraging AI to combat money laundering and terrorist financing, estimating that global economies could save $3.13 trillion annually through effective implementation of these technologies.
Despite the promise of AI, the complexity of navigating regulatory landscapes, accompanied by the pressing need for innovative compliance solutions, presents substantial challenges.
Watson elucidates that, while advanced technologies can empower financial institutions, the dual pressures of regulatory compliance and technological adoption can make efforts to diminish financial crime costly and intricate.
Recent developments, including the removal of the UAE from the Financial Action Task Force’s (FATF) grey list, signal progress in the nation’s AML and CFT frameworks. This achievement reflects the UAE’s commitment to strengthening its regulatory apparatus, yet it simultaneously heightens the expectation for financial institutions to maintain robust compliance systems to mitigate future vulnerabilities.
Khush Khan, Financial Crime Compliance Leader at Deloitte Middle East, said that regional governments are prioritising the enhancement of AML frameworks to mitigate risks associated with money laundering.
CFT frameworks
“The transition is pivotal as the Middle East seeks to attract business-friendly investment opportunities while ensuring robust regulatory compliance through innovative digital technologies.”
The rapid evolution of markets in this region has necessitated the integration of artificial intelligence (AI) into compliance systems. AI’s potential to streamline compliance processes is particularly crucial amidst the increasing volume of electronic payments.
By employing explainable AI and automation, financial institutions can effectively manage compliance without disrupting customer experiences or the digital payment infrastructure. Notably, the recent removal of the UAE from the Financial Action Task Force (FATF) grey list underscores the progress being made in fortifying AML and counter-financing terrorism (CFT) frameworks.
While AI regulation is still evolving in the Middle East, initiatives like those from the Saudi Data and Artificial Intelligence Authority (SDAIA) emphasise the need for transparency and public benefits.
The UAE’s conducive business environment positions it favorably for further integrating AI into compliance systems, enhancing operational efficiency and drawing global investment while upholding stringent regulatory oversight.
Internationally, the adoption of AI in financial crime compliance has demonstrated substantial potential for cost savings. Estimates suggest that regulated firms could save approximately $138 billion by incorporating AI into their AMLstrategies.
This trend is particularly pronounced in major economies like the United States, which stands to gain up to $23.4 billion in compliance cost reductions. Such investments in technology not only help mitigate financial crime risks but also contribute to economic recovery.
The insights of Dr. Janet Bastiman highlight the vulnerability of financial hubs to crime, necessitating a balanced approach to innovation and risk management. Mature economies have successfully navigated this landscape, and emerging markets in the Middle East are similarly striving to establish a sustainable equilibrium that minimizes losses to illicit financial activities.
