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UAE’s digital economy: 3 reasons why you need a sandbox for AML

The economy in the UAE is thriving, attracting foreign work and investment in the market. This positive shift means that financial institutions must now focus on maintaining robust compliance systems to prevent future vulnerabilities.

Daniel Fakhoury
July 3, 2024

The economy in the United Arab Emirates (UAE) is thriving, attracting foreign work and investment in the market. To bolster this further, in April 2022, the UAE launched its ‘UAE Digital Economy Strategy’ with the aim of doubling its gross domestic product (GDP) from 9.7% in 2022 to 19.4% within ten years. The goal is to secure the position of the UAE as a digital economy hub in the region and globally.

The growing UAE digital economy

An Economist Impact report on the UAE found that in 2022, 85% of UAE business do not sell products and services online or through eCommerce platforms. With plans to grow this in the coming decade, digital payments and banking will need to grow alongside it.  The financial sector is already paving the way for this, making the UAE the fastest-growing real-time payments market.  

The recent removal of the United Arab Emirates (UAE) from the Financial Action Taskforce (FATF)’s grey list is a significant milestone, highlighting the country’s efforts to strengthen its anti-money laundering (AML) and combating the financing of terrorism (CFT) frameworks. This positive shift means that financial institutions must now focus on maintaining robust compliance systems to prevent future vulnerabilities. A highly configurable and scalable sandbox environment is essential for this purpose, enabling easy calibration, testing, and implementation of new rules as money laundering typologies evolve.  

What is a regulatory sandbox?

A sandbox provides a controlled environment where compliance officers can test and develop customised rules for their AML systems. By running ‘what-if scenarios’ with live data, organizations can optimise rules without affecting the live environment, reducing false positives and enhancing operational efficiency. This capability is particularly vital for financial institutions in the UAE, given the region’s dynamic economic landscape and the need for stringent AML measures.

Three reasons why you need a regulatory sandbox to protect the UAE’s digital economy

1. Difficulty staying ahead of new money laundering typologies

Enhanced due diligence measures are needed for certain typologies. For example, the UAE is a high-risk market for money laundering in high-value jewellery. As such, rules need to be made to better detect this typology.  

Optimising financial crime compliance rules is essential but challenging without a sandbox. Implementing new rules directly in a live system is impractical and costly. Without a sandbox, compliance teams might need to rely on external data scientists, leading to prolonged and expensive rule refinement processes. An effective sandbox allows for real-time modification, testing, and improvement of AML rules using live or test data, all while adhering to organizational risk policies.

2. Failing regulatory scrutiny

The UAE has new, enhanced regulations which has led to its removal from the FATF’s grey list. A well-built sandbox supports version control, enabling a comprehensive history of AML rule iterations. This feature is crucial for regulatory audits, providing a clear narrative of rule modifications, testing methodologies, and outcomes. Without proper audit trails and controls, financial institutions risk regulatory penalties and scrutiny. A sandbox ensures that all significant actions are documented, making it easier to address regulatory inquiries and concerns.

3. Inefficient user interfaces

An outdated user interface can hinder compliance efforts, much like poorly placed controls in an airplane cockpit. Compliance professionals need a streamlined UI/UX to focus on their tasks without navigation challenges. A modern sandbox environment offers an intuitive interface, facilitating efficient rule building and compliance monitoring, enhancing overall operational effectiveness.

The UAE’s progress in anti-money laundering and counter-terrorist financing (AML/CFT) compliance underscores the importance of leveraging advanced technological solutions like sandboxes. These environments are critical for optimising detection, ensuring regulatory compliance, and maintaining efficient operations. As the UAE continues to attract international business, financial institutions must invest in next-generation compliance tools to sustain and enhance their AML/CFT frameworks.

By adopting a well-built sandbox, financial institutions in the UAE can not only comply with current regulations but also future-proof their systems against evolving financial crime threats. Learn more about the importance of sandboxes and how they can Napier AI can help you transform your AML compliance strategy today.

Photo by Mikk Tõnissoo on Unsplash

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