Financial Crime World

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Financial Crime in Bahrain: A Year of Change and Opportunity

The COVID-19 pandemic has brought significant challenges to businesses and individuals across the Middle East and Africa (MEA) region. While many financial institutions struggled with sluggish performance, others saw an opportunity to grow their compliance teams and increase spending on technology.

Fraud and COVID-19

The pandemic created opportunities for organised criminals and fraudsters across the globe, and the MEA region was no exception. The shift to digital transactions accelerated by COVID-19 led to a massive increase in fraud, including:

  • Phishing
  • Online shopping fraud
  • Impersonation fraud
  • Fake charitable appeals

In Bahrain, the Central Bank of Bahrain launched an eKYC project in 2019 to facilitate KYC data sharing amongst participating financial institutions. While this initiative has continued to develop over 2020, more needs to be done to address the growing threat of digital fraud.

Spotlight on Digital Onboarding and eKYC

Regulators across the MEA region are moving towards greater digitisation and use of technology to fight financial crime. In April 2020, the Arab Monetary Fund published a report on ‘Digital Identity and e-KYC Guidelines for the Arab Countries’ to further the debate on adopting digital onboarding tools.

Bahrain has been at the forefront of this trend, with the UAE introducing its own eKYC platform in July last year. However, care must be taken to select technological solutions that reduce risk exposure and are properly assessed and re-evaluated on an ongoing basis.

FATF Mutual Evaluation Report on the UAE

In 2020, FATF’s critical Mutual Evaluation Report on the UAE’s money laundering and terrorist financing controls highlighted significant weaknesses in the country’s AML/CTF systems. The UAE has faced criticism from other jurisdictions, including being included in a list of major money laundering jurisdictions identified by the US State Department.

Individual financial institutions in the UAE need to ensure they have up-to-date risk assessments that reflect the financial crime threats highlighted by external sources and align their procedures and controls to address and mitigate these risks.

MEA Regulators Start to Warm Up to Cryptocurrencies

The growth of cryptocurrency continued to show promise across Africa and the Middle East. Commentators believe the growing level of interest in Africa, coupled with compelling crypto use cases, will force regulators’ hands and encourage the issue of crypto-specific regulations in the coming years.

Bahrain has granted licenses to crypto exchanges under its relevant regulations, and currently has a number of crypto companies in its sandbox programme. However, more needs to be done to establish robust compliance programmes for crypto firms and other companies with potential exposure to them.

Slow Steps Towards Greater Transparency and Access to Data

A small number of governments across the MEA region have made moves to align themselves with international standards on transparency and accessibility of data. Bahrain has introduced new requirements for companies to declare their ultimate beneficial owners, but more needs to be done to make all this information public.

Industry bodies must lobby to ensure that all information is available, and financial institutions must work out how best to integrate these new sources of information into their onboarding, customer risk assessment, and ongoing due diligence processes.

Conclusion

2020 has been a significant year for the MEA region in terms of financial crime compliance. While there have been challenges, there have also been opportunities for growth and development. As we look to 2021, it is essential that regulators, industry bodies, and financial institutions work together to address the growing threat of financial crime.

FINTRAIL can assist with performing risk assessments, providing training, implementing RegTech solutions, composing policies and procedures, and designing and reviewing FinCrime controls. If you would like to contact us about any of the topics raised in this article or about your financial crime compliance needs in the MEA region, please email maya.braine@fintrail.co.uk.