New Instructions issued by UAE Central Bank to Counteract AML/CFT

The global recession, along with technological advancements, a lethal combination combined with the pandemic has created a slew of issues for financial institutions. As the regulatory framework changes and becomes more complex, financial institutions are constantly struggling to implement new regulations and build complete compliance systems. Through these weaker regions, financial crimes such as Anti-money laundering (AML) and counter-terrorist financing (CTF) risks are working their way into and damaging the monetary functioning of nations. In counteracting fraudulent practices, the government of the UAE has adopted severe measures to strengthen the examination of AML/CFT systems and controls.

The UAE also faces substantial illegal hawala activities due to its important role in the worldwide trade in oil, gold, and diamonds. Hawala is a parallel procedure for transferring money value to people in other nations. It is commonly utilized in rural areas of countries where banking facilities are unavailable. Regularizing Hawala is an essential part of the UAE Central Bank’s ongoing efforts to preserve fund transfer transaction transparency and improve reporting systems in accordance with international standards, particularly in the areas of anti-money laundering and combating finance terrorism (AML/CFT). In response, the Central Bank of the UAE (CBUAE) has issued new instructions to Registered Hawala Providers (RHP) and licensed financial institutions on anti-money laundering and counter-Finance Terrorism (AML/CFT).

Hawala is controlled by the CBUAE’s Registered Hawala Providers Regulation, which was published in 2019. A hawala provider certificate issued by the Central Bank is required for all providers engaging in hawala activity in the UAE. The UAE Central Bank allows lawful hawala activity, which is seen as an important part of the country’s ongoing efforts to increase financial inclusion and bring the unbanked into the regulated financial system.
The new CBUAE instruction will assist RHP and LFI in comprehending and successfully implementing the AML/CFT legislation established by Federal Decree No. (20) of 2018 and the AML/CFT legal duties established by Cabinet Decision No. (10) of 2019. RHP must completely comply with the UAE’s financial penalties and suspicious transaction reporting regulations (STR). RHP must also create and maintain a strong anti-money laundering and counter-terrorist financing compliance programme to avoid the exploitation of this activity to promote money laundering or terrorist funding.

Khaled Mohamed Balama, Governor of the CBUAE, said: “The CBUAE will continue to keep a suitably close eye on licensed financial institutions in the country, including registered hawala providers to enhance their effectiveness in implementing AML/CFT measures to safeguard the UAE’s financial system. This guidance reminds all parties of their duties in this respect.”

Governments all around the world have taken measures to strengthen the inspection of AML/CFT systems and controls in order to combat financial crime. When properly implemented, AML/CFT regulations reduce the negative impacts of illicit economic activity while also promoting financial market integrity and stability.