Hareb Masood Al Darmaki, Chairman, Central Bank of the UAE (CBUAE): Interview

Interview: Hareb Masood Al Darmaki

What more can be done to minimise local banks’ exposure to potential risks from financial instabilities?

HAREB MASOOD AL DARMAKI: The UAE’s banking system as a whole remains resilient with adequate capital, liquidity buffers, profitability and operational efficiency. With certain financial indicators, such as profitability or efficiency, the UAE banking system is performing in line or better than international and regional counterparts. Looking at external factors, global economic growth slowed in 2019. Against this backdrop, the easing monetary cycle in the US has brought about lower Federal Reserve policy rates, which will help stimulate demand for credit, reduce the cost of servicing outstanding debt for borrowers and lower bank funding costs. The regulatory framework of the CBUAE is in line with international best practices and is adjusted for UAE-specific factors. In the second half of 2019, we consulted with the banking industry to create a refined risk-based framework for banks’ real estate exposure. Set to be rolled out in 2020, the measures are set to improve flexibility for bank lending to the real estate sector and ensure that banks with real estate exposure above a set threshold are subject to supplemental regulatory requirements.

Which steps is the CBUAE taking to tackle financial crimes such as money-laundering?

AL DARMAKI: The CBUAE is responsible for ensuring that its regulated entities comply with anti-money-laundering (AML) and combatting the financing of terrorism (CFT) legislative obligations and controls. In this regard, our recently launched goAML application is a fully integrated software solution developed for the use of our Financial Intelligence Unit (FIU). It is specifically designed to meet the data collection, management, analytical, document management, workflow and statistical needs of the FIU. This application was developed by the Information Technology Service of the UN Office on Drugs and Crime in partnership with the Global Programme Against Money-Laundering, Proceeds of Crime and the Financing of Terrorism. The goAML app has been deployed by 49 FIUs globally and is currently in the implementation process of an additional 111 FIUs. The UAE FIU was the first in the GCC to go live with the goAML in June 2019. It can analyse and visualise large volumes of data to help understand complex patterns of transactions and develop tactical and strategic intelligence. It is also able to monitor potentially suspicious accounts and reveal patterns and hidden connections. Finally, the goAML app supports national and international efforts to combat financial crimes, and acts as a trusted gateway for sharing information domestically and globally in accordance with international AML/CFT standards.

How might the CBUAE help foster the development of financial technology (fintech)?

AL DARMAKI: While fintech is having an impact on incumbent financial institutions, they do not seem to have reached disruptive critical mass, and incumbents are adapting their business models as well as absorbing fintech advances. Nevertheless, technology firms are expected to play an increasingly larger role in the provision of financial services. In January 2017 we issued a regulation that covered digital payments and provided a regulatory framework for the development of stored value payments systems, where both incumbent and new entrants can provide innovative solution services. We see this as benefitting the UAE by providing better services and helping increase financial inclusion. Similarly, we have recently approved an application to establish the UAE’s first fully fledged digital bank.

We are currently developing a fintech office at the CBUAE to foster cooperation across the various digital initiatives being undertaken by industry, regulators, and local governments and authorities. We believe there is a need to create a harmonised regulatory approach to ensure that the UAE can attract and maximise the potential financial benefits of fintech developments.