?AML/KYC Compliance in MENA Financial and Legal Sectors

There has been significant growth in the #MENA region’s technology, asset management and crypto investments landscape over the last decade, a phenomenon that has created a strong need for the development of AML and KYC laws to bolster security across financial sectors.?

Across the world, Anti Money Laundering (#AML) and Know Your Customer (#KYC) laws have been introduced to oversee a wide range of applications across a diverse landscape of industries. Despite a wide variance of approaches, entities are having to abide by /established international protocols in AML/KYC. These standards, set by international watch parties such as the Financial Action Task Force, a global money laundering and terrorist financing watchdog, ensure that security protocols can locate, deter and prosecute parties conducting illegal financial transactions.?

Proactive MENA nations have adopted some of the international AML/KYC laws to make sure they don’t become a haven for fraudulent traders targeting lax regulatory infrastructures that are not equipped to detect and deter illegal transactions.

Some of the MENA nations apply their own versions of AML/KYC laws, building on recognized international benchmarks. One of these countries is the UAE which has integrated an electronic KYC (EKYC) process to safeguard its financial and legal sectors.

The electronic version of KYC affords huge security advantages because it involves collecting and verifying the data of customers. The approach is intended to digitally streamline transactions and minimize the typical bureaucratic barriers that face customers. EKYC boosts due diligence capabilities, and identifies, and tracks customers that could be potentially of ‘high risk’ for money laundering and terrorist financing.

A great benefit of the EKYC framework is that once set up it is far more cost effective to manage than the traditional processes involving less automated operations with manual labour. Because the electronic verification eliminates the need for manual intervention, if run well it also significantly reduces human error and can be more reliable and transparent.

The efficacy of EKYC cannot be overstated, but it should always be applied delicately to prevent fraudulent behavior while facilitating the operation of legitimate businesses. Its detractors believe that if applied too stringently it can deter Virtual Asset Service Providers (VASPs), which are businesses that act on behalf of clients to provide an exchange between virtual and fiat assets, and other customers from setting up and conducting business in the region.?

EKYC digital encryption is enhanced by AI technology to streamline transactions by maintaining user digital profiles. Yet this personal data gathering feature raises concerns about the possibility of and potential for privacy breaches. This is why governments are called on to be able to responsibly guarantee security against interception or personal data breaches by third parties.?

Despite all the challenges, the rapid expansion of the electronic KYC process has been a boon, efficiently processing large amounts of verifications instantaneously and replacing traditionally lengthy administrative and bureaucratic processes.

The emirate of Abu Dhabi is a prime example of a government that has distinguished itself as not just as an early adopter but also as an innovator in the EKYC space. In 2022 the Abu Dhabi government established an EKYC utility project that optimises processes in the country’s largest banks and that enables them to comply with international KYC standards.?

Over the past years, the UAE has been actively experimenting with blockchain technology to simplify and accelerate the KYC process, to help its banks to upgrade and adopt the solution securely. The successful transformation of the banking sector will likely incentivize other sectors to follow suit.?

Although this EKYC has not yet been widely implemented in the MENA region, its adoption is becoming more widespread and innovation taking place in countries like the UAE signals a bright future for AML/KYC adoption in the region.