x Abu Dhabi, UAEWednesday 26 July 2017

As the annual Sibos conference gets under way in Dubai today, the UAE's growing prominence as a hub for banking transactions will be among the most important topics up for discussion.

The growing importance of the UAE as a global financial transactions hub for emerging market trade will be among the key topics of discussion at this year’s Sibos conference, which opens today in Dubai.

The worldwide shifts of transaction banking flows towards developing markets, increased regulatory and compliance requirements and technical excellence will be the three main areas of discussion at the four-day conference, said Sven Bossu, the head of Sibos.

Up to 7,500 international delegates, including about 1,000 from the Middle East and Africa, are expected to attend the 35th annual conference, organised by the international banking services provider Swift, he said. The conference, to be held in the Dubai World Trade Centre, is the first Sibos staged in the Middle East.

UAE banks have benefited from a surge in transaction business in the past two years, stemming from growth in the local economy, and Dubai’s rising status as a trading and transaction hub, said Faisal Lalani, the head of institutional and international banking at Emirates NBD.

“Volumes have increased significantly in the past two years thanks to the rapid growth of the local retail and hospitality sectors,” he said. “At the same time an increased amount of trade involving emerging markets is being routed via Dubai.”

Of particular note is an increase in volumes between China and Africa, and between Turkey and North African markets, with Dubai playing a middleman hub role, he said.

An increased appetite for Islamic finance products internationally has also contributed to growing trade volumes between the UAE and Asia, said Mazen Boustany, a banking and finance partner with Baker & McKenzie Habib Al Mulla in Dubai.

“We’ve had a lot of advisory work recently on sukuk issues from local banks,” he said. “More and more such issues are being pitched at financial institutions in Asian markets such as Indonesia and Malaysia.”

Yet the dramatic increase in transaction volumes being handled by UAE banks is not matched by an equivalent increase in revenues, said Mr Lalani.

“Five years ago in the crisis years there was much less liquidity in the market, and banks were therefore more cautious about the transactions services they offered, which in turn meant that margins were higher,” he said.

“Nowadays banks’ overall liquidity position has improved significantly, meaning that there’s more competition to offer transaction services, which has meant that margins are much thinner.”

A key challenge facing local banks is to provide multinational clients with products that are consistent with those offered in other regions, said Mr Lalani.

“For Middle East banks the next frontier will be more advanced services such as pooling cash across the region,” he said.

One of the key themes of this year’s conference will be the increasing compliance requirements imposed on banks, in particular measures to counter money laundering, financial crime, and sanctions-busting.

Compliance with US, EU and UN sanctions within the region is of particular importance for UAE banks, said Mr Lalani.

“These sanctions affect all banks globally. However, without a doubt it’s particularly challenging for UAE banks like us, given our geographic location,” he said.

Banks have significantly increased their due diligence on customers in the past two years given the growth of sanctions, with increased screening of new clients, he said.

In response to such concerns, Swift last year launched Sanctions Screening, a centralised services for SME financial institutions. The organisation announced this month that more than 100 customers in 50 countries had signed up to the service, which will be showcased on Wednesday.

Since the global financial crisis, authorities have increased the regulatory and compliance requirments on banks, with the burden likely to become even heavier in the coming years.

However, such requirements were a necessary burden following the crisis, said Mr Boustany.

“We witnessed a period a few years ago where we didn’t have such requirements, there was less regulation and the result was the global financial crisis,” he said. “In the light of what happened, such new requirements are a necessary evil, I would say.”

jeverington@thenational.ae