Banking and Finance news in the MEA market
October/November 2020
MEAFINANCE
Shaping the future of financial services Tarek El Nahas, Senior Executive Vice President and Head of the International Banking Group, Mashreq Bank
October/November 2020
A MEA Business Publication
A MEA Business Publication
Shaping the future of financial services Tarek El Nahas, Senior Executive Vice President and Head of the International Banking Group, Mashreq Bank
14 Banking & Finance | 22 Technology | 44 Real Estate Investment | 58 Islamic Finance | 60 Legal Perspective
HOW CAN YOU ACCESS U.S. REAL ESTATE INCOME SOLUTIONS? LAKE RIDGE PARKWAY
DALLAS
FORT WORTH
In business for over 40 years, the Walton Group of Companies is an international real estate investment company focusing on the research, acquisition, administration, planning and development of strategically located land in major North American growth corridors. Working closely with the largest U.S. homebuilders, we specialize in providing innovative land-based real estate products focused on generating short to medium term USD income for qualified investors.
Endorsed as Shariah-compliant by Amanie Advisors
Speak to us today to learn more about our products and how you can deliver superior returns for your High Net Worth Clients. For more information, please contact TIM HAYWOOD at Timothy.Haywood@walton.com | +971 05 44 888 673 Risk disclosures: Investing in land has risk. Land investment is illiquid and it may be impossible for you to sell your land within a short period, or at any time at all. Land could potentially lose value over time. Past performance is not necessarily indicative of future results. No representation is made that profits, income or other returns will arise, or will likely arise, from the acquisition, holding, disposal or any other dealing with the land, or that any profits, income or other returns will arise or will likely arise within any specific time. These risk disclosures do not purport to disclose all risks associated with land purchases. Walton does not provide any investment, financial, accounting, legal or tax advice. You should carefully consider whether land investment is suitable for you in light of your financial circumstances, and consult professional investment and tax advisers if necessary. Walton and its representatives are not licensed to deal with real property located in Mainland China, Hong Kong, Macau, Taiwan, Japan, Korea, UAE, Singapore, Malaysia, Thailand, Vietnam, Indonesia, India, Philippines and South Africa.
202008_MEA Finance Ad template.indd 1 Ad_210x270mm.indd 1
5/8/2020 11:56 AM 05/08/2020 10:02 PM
In this issue...
T
he Covid-19 pandemic has redefined the world of banking. In the October issue of MEA Finance we take a deep dive into what this means for the sector. Our cover story this month is an interview with Tarek El Nahas, Senior Executive Vice President and Head of the International Banking Group at Mashreq Bank. As a bank that is often compared to a BigTech firm with a banking license, Mashreq Bank understands the challenges of a world that is increasingly online. “Even before COVID-19 hit, customers expected banks to provide a similar digital experience as they receive when interacting with other large brands or online marketplaces,” El Nahas points out. You can read his full interview from p36. The theme is developed by Abdulfattah Sharaf, CEO UAE & Head of International, HSBC Bank Middle East on p16. He talks about the partnerships that the bank is creating with the fintech industry and the benefits of early adoption. A great deal of recent attention has been on larger organisations, but on p56, Colin Dallas, Head of Retail Banking at National Bank of Fujairah (NBF), gets into what this financial digital transformation means for small and medium-sized enterprises. NBF’s new platform aims to create a community where SMEs can share their knowledge and expertise, connect, and engage in industry-related conversations, as well as receive the latest market insights and learn about e-commerce and marketplace management. And Jean-Paul Mergeai, Managing Director of Temenos for Middle East & Africa, gets into the nitty-gritty of compliance. As it becomes increasingly digitised, compliance and regulation are putting great pressure on banks. Read his article on p28. These are just a few highlights in the magazine. Also in this issue, don’t miss Tim Haywood, General Manager and Regional Vice President at the Walton Group of Companies, who looks at how Shari’ah-compliant real-estate investments are creating more options for portfolio diversification under the umbrella of Islamic Finance (p44). details the benefits it can provide to both families and businesses. All this as well as our regular coverage of deals across the region. Enjoy!
Adrian Murdoch mea-finance.com
3
CONTENTS
CONTENTS
MARKET NEWS
6
Central Bank UAE stresses importance of adopting effective regulatory policies to mitigate economic implications of COVID-19
8
Listing on Premier Market continues Boursa Kuwait’s series of milestones
BANKING REDEFINED
14 15 16
A journey of banking transformation Change for the future The trends shaping the future of the financial sector in the GCC
REGULATION AND COMPLIANCE TECHNOLOGY
24
Challenges on the path to achieving impact
26
Trends and challenges in regulation and compliance
28
The technology bringing sanctuary and surety to finance
COVER STORY
36
36 MEA Finance (a MEA Business supplement) WEB: www.mea-finance.com EMAIL: info@mea-finance.com PUBLISHED BY: Creative Middle East Media FZ LLE, 19th Floor, Creative Tower, Fujairah Creative City, PO Box 4422, Fujairah, UAE EXECUTIVE DIRECTOR AND PUBLISHER : Kenneth Mitchen Email: ken.mitchen@mea-finance.com
4
Banking and Finance news in the MEA market
Shaping the future of financial services
BANKING & TECHNOLOGY
40
Accelerated digital investment gives Middle East banks a decisive advantage post-COVID
42
Building an Intelligent Data Foundation for the Financial Industry
REAL ESTATE
44
Shari’ah Compliant Real Estate Investment
40
INVESTMENT BANKING
48
Striding purposefully ahead despite the headwinds
OPINION PIECE
56
How the digitisation of the SME sector was an essential step for the industry’s growth-journey
ISLAMIC FINANCE
58
UK lead on Sustainable & SRI Finance and opportunities for IF
42
44
48
56
LEGAL PERSPECTIVE
60
Reasons to be cheerful
LIFESTYLE
62
The comfort of efficiency
60
62 mea-finance.com
5
MARKET NEWS
Central Bank UAE stresses importance of adopting effective regulatory policies to mitigate economic implications of COVID-19
A
bdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the United Arab Emirates (CBUAE), chaired the virtual meeting of the 44th Regular Session of Council of Arab Central Banks and Monetary Authorities Governors. He gave his opening remarks in the presence of governors and experts from various international authorities and institutions. The meeting, which was organised by Arab Monetary Fund (AMF) highlighted key trends for central banks which include economic, financial and monetary impact of the COVID-19 pandemic and post-crisis requirements for policies and tools to boost the economy in the aftermath of the pandemic, as well as the major systematic risks that jeopardise monetary stability and role of central banks. In his opening remarks, Alahmadi highlighted the vital role of central banks and Arab Monetary Authorities play to safeguard their economies and promote financial stability and the soundness of the banking sector. He also stressed the importance of adopting regulatory and monetary policies to mitigate the economic implications incited by the COVID-19 pandemic.
6
The meeting was attended by Christine Lagarde, President of the European Central Bank (ECB), who explained how the ECB’s monetary policy have reacted strongly to the pandemic during the past few months and shared her views about the outlook for the global economy. Following her speech, Mohammed El-Aryan, the Chief economist at ALLIANZ discussed international financial flows and their impact on the external positioning of emerging economies and developing countries during the crisis and the policies that must be considered in these markets. Furthermore, Sylvie Goulard, Vice Governor, Banque de France addressed Fintech and digital transformation of financial services and products in light of the implication of the COVID-19 pandemic and the keenness of central banks to adapt these technologies. Luiz Awazu da Silva, Deputy General Manager, Bank for International Settlements (BIS) spoke about climate change impact on the financial system and financial stability, urging central banks to support sustainable economic initiatives. Dr. Marcus Pleyer, President, Financial Action Task Force (FATF) underlined the progress and challenges in efforts to combat money-laundering and terrorist
Banking and Finance news in the MEA market
H.E. Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the United Arab Emirates (CBUAE)
financing and the importance of expanding financial inclusion highlighting the efforts undertaken Arab countries in this regard. Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE said: “During this meeting, the robust efforts led by the central banks and monetary authorities signalled issues and developments that represent key trends which policymakers must harness to safeguard the economy and promote financial stability.� He stressed on the importance of leveraging financial technology and digital transformation in financial services to protect the national economy, wherein the UAE has excelled.
MARKET NEWS
Listing on Premier Market continues Boursa Kuwait’s series of milestones
B
oursa Kuwait announced that it will list its shares on the “Premier Market” following the Capital Markets’ Authority’s approval and trading of the company’s shares commenced during September 2020, under the ticker symbol “BOURSA”. The company will be classified under the “Financial Services” sector, bringing the total number of companies on the exchange to 174, while the number of listed companies in the “Premier” Market rises to 20 companies. Boursa Kuwait’s position as a regional leader among stock exchanges is reinforced with the listing of the bourse on the local stock exchange, continuing a series of firsts for the company. It is the first stock exchange to be at least 90% owned by the private sector in the Middle East and the first government entity in Kuwait to successfully undergo privatization. The listing is considered the fruit of the company’s labors and continuous efforts to institute long-term reforms on both the company level and in the Kuwaiti capital market since its establishment, as well as introducing products and services compatible with the best-in-class international standards, all in line with the company’s vision to develop a liquid and transparent financial market. Boursa Kuwait saw a net profit of KD 5.63 million for first half of 2020 while the company’s total assets came in at approximately KD 41.7 million. Total
8
operating expenses were KD 3.12 million while total operating revenue came in at KD 6.77 million. The results reflect the strength of the operational model and the strategy in place as well as the company’s financial solvency, which have allowed it to overcome the challenges of the Covid-19 pandemic and deliver an exceptional performance. Boursa Kuwait Chairman Mr. Hamad Mishari Al-Humaidhi said, “Boursa Kuwait’s listing today marks a historic milestone for the company as it enters the next phase in its growth and development. We are proud of our journey, which has cemented us as the crown jewel of the Kuwaiti capital market and is indeed the model of a Kuwaiti success story, which in turn will contribute to the elevation of the country regionally and internationally. I would like to take this opportunity to commend Boursa Kuwait’s Board of Directors and Executive Management, with their solid structure consistent with the nature and activities of the company, and their efforts to develop a liquid, reliable and sound capital market that services all relevant asset classes, focusing on the interests of both issuers and investors through excellence in everything it does.” The listing was also hailed by Boursa Kuwait CEO Mr. Mohammed Saud Al-Osaimi, who highlighted the company’s operational excellence. “The listing of Boursa Kuwait on the “Premier
Banking and Finance news in the MEA market
Mohammad Saud Al-Osaimi, Boursa Kuwait, Chief Executive Officer
Market” marks another milestone in the company’s journey of excellence. Apart from the major enhancements that the company drove as the engine of growth and development, the company also witnessed substantial growth in its own operations and continues to work towards strengthening the infrastructure and operational model. Boursa Kuwait has cemented its position as a leading stock exchange that pioneers innovative approaches to market development.” Since its inception, Boursa Kuwait has worked effortlessly to create a credible exchange built on efficiency and transparency, creating a liquid capital market, a progressive exchange platform and developing a comprehensive set of reforms and enhancements that has allowed it to compete on an international level.
GFH Ad - MEA Finance.pdf
C
M
Y
CM
MY
CY
CMY
K
1
9/21/20
4:16 PM
MARKET NEWS
Subdued profitability outlook for KSA’s top 10 banks says ALVAREZ & MARSAL’S Q2 2020 Saudi Arabia Banking Pulse report
G
lobal professional services f i r m A l va rez & M a rs a l (A&M) has released its latest Saudi Arabia Banking Pulse for Q2 2020. The report suggests that the profitability outlook for banks remains subdued, because of the twin effects of low oil prices and Covid-19 lockdowns which might impact credit demand and asset quality. Saudi Arabia’s top ten banks reported a marginal increase in deposits compared to the preceding quarter, which improved the banks’ funding position. In Q2, the loan to deposit ratio (LDR) increased slightly to 86.1%. Saudi banks continued to improve their efficiency, as cost to income (C/I) ratio declined for the second consecutive quarter; a result of a regimented approach to cost optimisation and lower operational expenses during lockdown. Despite incessant decline, the C/I ratio remains slightly above the average achieved in in 2019 (34.6%). The report indicates that the provisions for loans increased significantly for the banks that reported second quarter earnings. Total provisioning rose by 64.7% quarter-on-quarter (QoQ) to SAR 5.1 billion in Q2 2020, continuing its volatile trend. Coverage ratio declined for the fifth consecutive quarter to reach 146.2% because of a rise in the nonperforming loans by 9.6%. Depending on future macroeconomic factors,
10
reserve building could continue in the approaching quarters. Alvarez & Marsal’s Saudi Arabia Banking Pulse examines the data of the 10 largest listed banks in the Kingdom of Saudi Arabia (KSA), comparing the second quarter of 2020 (Q2 2020) against the previous quarter (Q1 2020). Alvarez & Marsal’s report uses independently sourced published market data and 16 different metrics to assess banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability and capital. The country’s 10 largest listed banks analysed in A&M’s KSA Banking Pulse are National Commercial Bank (NCB), Al Rajhi Bank, Riyad Bank, Samba Financial Group, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Saudi Investment Bank and Bank Al Jazira. Dr. Saeeda Jaffar, A&M Managing Director and Head of Middle East, and Asad Ahmed, A&M Managing Director and Head of Middle East F i n a n c i a l S e r v i c es , c o - a u t h o re d the report. Speaking on the second quarter findings of Saudi Arabia Banking Pulse, Mr. Ahmed, commented, “Despite the challenging stance on profitability, we believe Saudi banks are still intent on paying dividends for 2020 which could bind their pace of growth. The banks top-line growth is also challenged by
Banking and Finance news in the MEA market
Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services
the compression of their net interest margins, limiting income growth. We envisage that the top banks will maintain similar risk appetites but believe the pressures on their profitability and capitalisation will persist for the coming quarters, and only cost optimisation measures can support the banks’ viability. “We anticipate that regulators will remain committed to containing financial-sector risks with a series of stimulus measures worth SAR 170 billion to support the economy. The planned merger between NCB and SAMBA has reinstated the consolidation wave in the domestic banking sector to create a stronger financial ecosystem in the Kingdom.”
Celebrating excellence in banking and finance The MEA Finance Awards 2020 celebrate the absolute best of service and achievement in the banking and financial services sectors, and the smartest technology solutions providers to the industry from across the Middle East and Africa.
With the challenges thrust on us in 2020, more than in any recent year, these awards will carry the full weight of the meaning of words like excellence, service and leadership.
KEY DATES October 6 – Submission Deadline October 11 - November 5 – Judging Process November 10 – Winners Announcement WHO CAN PARTICIPATE? Commercial banks Retail and investment banks Islamic banks Private banks Technology providers Wealth management firms Consultancy and Advisory firms HOW TO ENTER Step 1: Choose your category. It is important to review the individual descriptions and criteria before choosing your category. Step 2: Upload relevant financial performance documents, case studies, or other relevant information. Step 3: Confirm submission of your entry.
*All nominations shall be submitted on or before 6th October deadline.
MEAF_Awads2020 house ad.indd 2
Our aim is to provide a platform to highlight and honor the visionary institutions and individuals who continue to set standards of excellence in the industry and create robust financial systems through innovation and digital transformation. Judges will give due recognition to outstanding banks, financial institutions, and service providers for their:
Exceptional products and services Digital readiness Responsiveness to the changing times Innovative leadership
JUDGING PROCESS The awards will feature a rigorous two-step judging process by a panel of industry experts in collaboration with the MEA Finance editorial team. 1. All nomination entries will be meticulously evaluated and analysed based on relevant market knowledge, industry research, and accurate company financial statements. The MEA Finance editorial team will then create a shortlist which will be given to the judging panel. 2. The judging panel will be composed of senior executives from professional services firms working with the banking industry. They will review the shortlist and the submitted materials for each category and place a score from 1 to 5 for each category nominee. All scores will be sent back to the editorial team. 3. The MEA Finance editorial team will independently score shortlisted institutions per category. Score values will be from 1 to 5. All scores will be kept confidential and will not be released publicly, nor will they be discussed with any individual applicants. 4. Scores from both the judging panel and the editorial team shall be collected and combined. The editorial team will hold an official tabulation of the scores to determine the highest scoring institution per category which will be declared winner.
8:11 2020/07/30 AM
MEAF_A
/07/30 AM
MEA Finance Awards Categories Leaders in Banking and Finance
(Editors Choice – individual awards) Outstanding Leadership Award Lifetime Achievement Award Banker of the Year Best Technology Executive of the Year for Financial Services - Vendor Best Technology Leadership Award
Financial Services
Best Retail Bank Best Islamic Bank Best Commercial Bank Capital Markets Transaction of the Year Best Global Bank in the Middle East Best SME Bank Best Takaful Provider Best Private Bank Best Wealth Management Firm in the Middle East Best Trade Finance Provider Best Cash Management Provider Best CSR Programme - Financial Institutions
Best Payment Solutions Provider - Vendor Best Cybersecurity Provider - Vendor Best Communications Infrastructure Provider- Vendor Best Core Banking Service Provider - Vendor Best Digital Banking Innovation Provider - Vendor Best Risk Management Solutions Provider - Vendor Best Reg Tech Vendor Best Islamic Finance Banking Software Provider - Vendor Best Islamic Fintech Solutions Provider - Vendor Best CSR Programme - Financial Technology Provider Special Achievement in Digital Innovation
Covid-19 Responsiveness Special Awards
Best Retail Response to the Covid-19 Crisis Best Commercial Response to the Covid-19 Crisis
Investment
Best Investment Bank Best International Real Estate Investment Firm Best Private Equity Firm Best Brokerage Solutions Provider Best Investment Management Firm - UAE Best Investment Management Firm - Saudi Arabia Best Investment Management Firm - Bahrain
Service Providers to the Banking Sector
Best Investment Consultancy Firm Best Research & Consultancy Firm Best Digital Transformation Consultancy Firm Best Restructuring Consultancy Firm Best Ratings Agency
Technology
Best Mobile Banking Solution Best Neo Bank Best Online Banking Service Best Cybersecurity Implementation Best User-Experience Best Digital Transformation - UAE Best Digital Transformation - Saudi Arabia Best Digital Transformation - Bahrain Best Payments Solution
ANNOUNCEMENT & AWARDING Winners will be announced on 10th November 2020. All winning institutions and individuals will be promoted on MEA Finance website and e-newsletters, and will subsequently be featured in the December issue of MEA Finance magazine to be distributed in the region. Trophies and certificates of recognition will be presented individually to winners on video and will be made public via MEA Finance website and social media channels.
To learn more, visit awards.mea-finance.com/2020/ For inquiries, call +971 50 1005488 / +971 50 9313236 or email: info@mea-finance.com MEAF_Awads2020 house ad.indd 3
30/07/2020 8:11 AM
BANKING REDEFINED
A journey of banking transformation The Gulf region boosts of some of the world’s renowned financial centers and growth in banking assets is linked to regional GDP, which moves largely in tandem with oil prices.
By Walter Sebele
G
CC countries are still reliant on oil which accounts for three-quarters of the sixnation bloc’s spending. A sharp decline in oil prices together with production cuts in line OPEC pledges and disruptions in trade and tourism due to the outbreak of the COVID-19 virus has added further headwinds to growth in the region. The GCC region boosts of some of the world’s renowned financial centers and growth in banking assets is linked to regional GDP, which moves largely in tandem with oil prices. According to Moody’s, “Banks in the GCC region will see profits fall this year as economies shrink amid the coronavirus outbreak and lower oil prices, but have adequate capital underpinning their solvency.” Despite these challenges, Gulf lenders are coming up with ways to resist external shocks ranging from digitalization, reducing a glut of banks in the region through synergies and sustainable financing.
Merger & Acquisitions Analysts expect the impact of the coronavirus pandemic, low oil prices, and plunge in oil demand together with weak economic growth to drive consolidation in the GCC financial services sector
14
as banks seek ways to improve competitiveness and boost capital amid slowing growth. “We have seen some recent examples across the region of banks coming together to compete on a regional and global scale. This trend is likely to further gain impetus in the coming months and years,” said Vineet Madan, Head of Retail Banking & Deputy Regional Manager, Banque Misr, UAE, and Gulf Branches. The merger between the National Commercial Bank (NCB) and Samba Financial Group could establish a megabank and the emerged entity will have a total asset base of $213 billion putting NCB on an equal footing with regional rivals in Qatar and Abu Dhabi. Oman Arab Bank completed its acquisition of Alizz Islamic Bank through a share swap deal earlier in July in a deal that is expected to create a lender with more than $8.3 billion in assets. Similarly, Dubai Islamic Bank (DIB) completed its takeover of Noor Bank through a share swap deal, in a deal that is expected to position DIB as one of the largest Islamic banks in the world with total assets exceeding $74.9 billion.
Digital transformation GCC banks are pro-innovation and industr y experts expect them to continue to dominate the banking scene
Banking and Finance news in the MEA market
even as the sector goes more digital. Similarly, the banks’ tech-sav v y customers and regulatory initiatives such as regulatory sandbox and open banking will also accelerate the banks’ digital transformation. Abdulfattah Sharaf, CEO UAE & Head of International, HSBC Bank Middle East Limited, said, “Technology, innovation, and sustainability are clear priorities for the banking sector not only in the region but globally.” The World Bank hailed GCC central banks for their extensive record of fintech regulatory innovation. The Gulf central banks were among the first to launch regulatory sandboxes and crowdfunding regulations in the emerging markets. In the UAE, DIFC Fintech Hive and ADGM’s FinTech Digital Lab are some of the region’s largest financial technology accelerators that are supporting FinTech, InsurTech, RegTech and Islamic FinTech startups to transform their ideas into working prototypes to accelerate the development and market introduction of digital banking products and services. With financial technology developing rapidly, and profits, soundness indicators and asset growth remaining healthy despite the impact of COVID-19, the banking sector is well-positioned to continue leading non-oil growth and diversification in the Gulf.
Change for the future Sunil Paul, Co-Founder & Managing Director of Finesse suggests the coming months will be crucial for the Banking and Finance sector and that to master future challenges, the adoption of new technologies is unavoidable.
Sunil Paul- Co- Founder & Managing Director, Finesse
W
e have noticed several trends across the GCC banking sector. Which trends do you see shaping the future of the financial services industry for the seeable future? Banking and Financial Services (BFSI) companies are accelerating towards innovation to prepare for a future driven by technology. Digital transformation technologies will help enterprises across all industries to master future challenges. Their success will depend on how they adapt these key technological advancements to their business processes. Key trends that will shape the BFSI industry will include going mainstream with digital transformation, use of technologies like Blockchain, automating eligible processes through Robotic Process Automation (RPA), becoming more technologically agile using cloudbased services, investing in cybersecurity and using AI for many usecases (chatbots, fraud detection) in their businesses.
Do you see these trends picking up pace for the next year or so? Definitely! The BFSI sector is amongst the first adopters of new technologies and
in the GCC, is catching up on the trend. Case-in-point is the Covid-19 pandemic, where companies sped-up adoption of new banking technologies, thus delivering on superior customer experiences, improving cost-efficiencies and surviving the pandemic.
What is your organization doing differently to adopt to these trends? At Finesse, we keep ourselves up to date on global technology happenings. Our experts in specific domains strive to support our clients to decide on the best use of the upcoming technologies in their businesses, to support them in their digital transformation journey, with the adaption of blockchain, automation of processes, or use of AI across various use-cases and with all the technology solutions available today.
W h a t a re t h e s i g n i f i c a n t challenges confronting the banking sector across the GCC region currently? And how do you expect these to pan out in the last quarter of the year? The COVID-19 pandemic could be the most serious challenge to financial institutions in the GCC region in a century. Key challenges confronting the banking sector in the GCC will include focus on business continuity plans, improving cost-efficiencies by trimming costs, managing balance-sheet with
stress on loans & NPAs while managing customer expectations. Creating a smooth business process in a financial institution is a daunting task. A few of the most common problems seen during these unprecedented times are regulatory compliances, changing business models, customer retention, security breaches etc;
How do you envision the future of banking and if I were to sit down with you again six months from now do you think you will give me the same answer? The BFSI sector is fast evolving. With the onset of the Covid-19 pandemic, customer expectations are changing. The next six months look crucial for the BFSI sector. Decisions made by key stakeholders will decide on how the future of banking looks. We predict digital services becoming mainstream in most banks in the UAE and the GCC. Banks will make use of cloudbased technologies, and its associated services like increased cyber-security and resilience and use of AI for services provided to customers. By adopting these technologies, costs will reduce, while customers will see services becoming more simple, faster and economical. Currently, organizations not utilizing cloud services must keep investing in additional hardware to scale up. One of the most significant benefits of moving to cloud is its potential to help banks reduce operational costs and effectively make use of the data for their AM & ML programs. mea-finance.com
15
BANKING REDEFINED
The trends shaping the future of the financial sector in the GCC Abdulfattah Sharaf, CEO UAE & Head of International, HSBC Bank Middle East Limited, shares his insights with MEA Finance and pinpoints the developing trends in the regional financial service sector.
W
e have noticed several trends across the GCC banking sector. Which trends do you see shaping the future of the financial services industry for the seeable future?
Technology, innovation and sustainability are clear priorities for the banking sector not only in the region but globally. At HSBC, these have been areas of investment for a number of years but the global pandemic has shown us that it is more imperative than ever to be on the forefront of digital banking and innovation, while also being able to offer a wide range of green solutions to our customers.
Do you see these trends picking up pace for the next year or so? While HSBC has been innovating and investing in new technologies for decades, we’ve absolutely seen an acceleration in the pace of change over the last few years - and the impact of COVID-19 has put an even greater focus
16
on the importance of innovative digital banking solutions. Our technology and banking teams have been working closer than ever over the last six months to accelerate planned developments, such as incorporating digital signatures into customer journeys to provide contactless service, and launching a new online investment platform in the UAE, providing real time access to book equity and ETF trades at the customer’s convenience, along with robust insights to track progress on their wealth portfolio. Keeping our customers connected to their finances – whether savings and investments, or payments and international transfers – has ensured that funds have stayed flowing despite lockdowns and economic dislocation worldwide. The sustainable investing landscape is also an area where we are seeing rapid change. Led by several years of shifting societal expectations, investors are placing increased importance on the wider social and environmental impact of businesses and international supply chains. They are considering
Banking and Finance news in the MEA market
more stakeholders and thinking longer term to make purpose-led investments. When crises manifest – particularly with social and environmental causes and implications such as COVID-19 – we see investors and corporates considering the materiality of these issues and assessing how well economies manage the associated risks and opportunities.
What is your organization doing differently to adopt to these trends? Our approach at HSBC to financial technology innovations has been to partner with the fintech industry, helping to build a stronger ecosystem and provide superior products and services to customers. These partnerships are bringing significant customer and business benefits to HSBC globally, delivering insight into major innovation trends, early adoption of new technology or business models, and sound financial returns. We’ve been at the forefront of finding innovative solutions for our customers to create a bank fit for the future.
LED BY SEVERAL YEARS OF SHIFTING SOCIETAL EXPECTATIONS, INVESTORS ARE PLACING INCREASED IMPORTANCE ON THE WIDER SOCIAL AND ENVIRONMENTAL IMPACT OF BUSINESSES AND INTERNATIONAL SUPPLY CHAINS.
On the sustainability front, in July 2020 HSBC announced the formation of a dedicated Environmental, Social and Governance (ESG) Solutions unit to help clients around the world rebuild and transition their businesses and economies in a more sustainable way post-COVID-19. HSBC has taken a leading global role in ESG financing in recent years and the new unit will more effectively focus the bank’s full range of capabilities and expertise in providing clients with ESG-related advice, strategies and financing ideas.
W h a t a re t h e s i g n i f i c a n t challenges confronting the banking sector across the GCC region currently? And how do you expect these to pan out in the last quarter of the year? It is no secret that COVID-19 changed the world and like many other industries, the banking sector was not immune. We are now focused on the future. New industries for future cities will need technical support and collaboration from all over the world. This will be a challenge but also an opportunity for a bank like HSBC.
How do you envision the future of banking and if I were to sit down with you again six months from now do you think you will give me the same answer?
Abdulfattah Sharaf, CEO UAE & Head of International, HSBC Bank Middle East Limited
As we saw over the last six months, trade and supply chains have been changed, some may argue, forever. We will see supply chains move closer to the end consumer. Companies that were not digital have no choice but to digitise to be able to survive. Paper is becoming a thing of the past. Without technology, goods can’t move. Usage of our online corporate banking platform, HSBCnet, witnessed a 300% increase in the wake of the COVID-19 crisis and our investment in technology such as blockchain helped transaction times shrink from weeks to days. I think this trend is only going to exacerbate in the coming months and years ahead. mea-finance.com
17
BANKING REDEFINED
The shape of things to come Vineet Madan, Head of Retail Banking & Deputy Regional Manager, Banque Misr gives MEA Finance precise answers to questions on the future of banking, noting change tempered by current circumstances but a generally positive direction for the industry in the region.
W
e have noticed several trends across the GCC banking sector. Which trends do you see shaping the future of the financial services industry for the seeable future?
Vineet Madan, Head of Retail Banking & Deputy Regional Manager, Banque Misr, UAE and Gulf Branches
18
A few transformational trends that will likely shape the Industry in the near future are: • A cceleration towards Connected B a n k i n g : B a n ks a n d f i n a n c i a l institutions are starting to see the potential of innovation and technology to change the traditional ‘commodity’ perception of banking into a more ‘experience’ based banking. • Innovative business models: The Bank-Fintech partnership model that has gained momentum globally but has been slow to gain acceptance in the GCC. However, this is set to change with the growing impetus from the regulatory bodies towards creating a viable environment for Fintechs to flourish as well as growing funding options. • Subdued bank profitability due to higher loan loss provisions and lower economic growth, a result of the prevailing macroeconomic environment.
Banking and Finance news in the MEA market
• C hanging role of branches: Despite the growing acceptance of digital delivery channels, branches will remain relevant. However, their role and nature of services offered will change. I see branches increasingly become advisory centers where customers come for their more complicated requirements while performing their mundane tasks remotely. • C onsolidation in banking: The GCC market has generally been overbanked and a case of consolidation was always there. We have seen some recent examples across the region of banks coming together to compete on a regional and global scale. This trend is likely to further gain impetus in the coming months and years.
Do you see these trends picking up pace for the next year or so? The trends I highlighted are in their nascent stage of evolution, except the one concerning bank’s financial performance which, in my mind will begin to correct itself from 2022 onwards. The trends towards digital led business models is here to stay and will only accelerate, especially in the aftermath of the Covid-19 pandemic. I am most optimistic about the trends towards
a connected banking ecosystem and a bank-fintech partnership-based business model, especially in the UAE.
What is your organization doing differently to adopt to these trends? We, at Banque Misr UAE, realize that the key to success in this disruptive age is to be customer centric in everything we do. Some of the areas of priority are (1) Improving customer experience by enhancing our non-branch delivery channels (2) building an ecosystem for our small business clients and (3) developing a digital first organization culture.
W h a t a re t h e s i g n i f i c a n t challenges confronting the banking sector across the GCC region currently? And how do you expect these to pan out in the last quarter of the year? Most challenges we face today are a result of lower oil price and pandemic induced economic downturn. The region
DESPITE THE GROWING ACCEPTANCE OF DIGITAL DELIVERY CHANNELS, BRANCHES WILL REMAIN RELEVANT. faces GDP contraction this year (7.1% dip in GCC GDP as per IMF July’20 report). This will have an impact on job losses and an overall uncertain employment outlook. In addition, the low interest rate environment we are in, has impacted banks’ bottomline. I expect these challenges to persist for at least the next 4-5 quarters with economic activity picking up gradually starting Q4 2020 especially if we are able to get a safe and effective vaccine that widely available.
How do you envision the future of banking and if I were to sit down with you again six months from now do you think you will give me the same answer? Banking is transforming at an accelerating pace. I see the future bank to be: 1. Ecosystem based: Banks will offer a host of financial and related services to their customers while partnering with relevant stakeholders 2. D igitally connected: Customers will want and are likely to get an ‘always on’ bank that is there to address their needs anytime, anywhere through any channel of their choice. 3. D ata and Insights led: Banks will differentiate their value proposition based on data analytics that is insights led and is able to perform personalization at scale. 4. Socially relevant: Lastly, consumers will prefer banks that align with their environmental and social values in a more purposeful age. mea-finance.com
19
BANKING REDEFINED
On the path to the future Group Chairman & CEO, Mohammed Kateeb says inevitable change is afoot in the financial services industry; strategic foresight is key to navigate economic, political and financial uncertainties to achieve long-term goals.
W
e have noticed several trends across the GCC banking sector. Which trends do you see shaping the future of the financial services industry for the seeable future? Digitisation has become the top priority for banks in the region, forcing many to rethink their processes, organizations, internal culture and the way they do business. This has decreased focus on branches and increased focus on eChannels. If we see the opening of new branches today, they are smart branches with fewer people and more machines. Additionally, we started to see a new breed of banks; “challenger” banks, who are either subsidiaries of existing banks or completely new digital banks. Of course, their model is completely different from traditional banks and we are yet to see how successful they will be in our region. One of the catalysts for this change is the fintech movement in the region, although it has not been as strong as other regions and has not lived up to its hype yet. This movement is likely to continue and may pick up steam if banks increase partnerships and investment in the startups, but also, we should realize that banks have been aggressively retooling to deny much space for these fintechs to operate.
Do you see these trends picking up pace for the next year or so? Over the last several months, COVID-19 acted as a catalyst for these trends to
20
continue especially on the digitalization front. The usage of eChannels to conduct banking services such as Internet and mobile banking has increased manyfold. Digital banks and fintechs need to demonstrate that they can gain trust of customers. Trust is of the utmost importance here, as it will either facilitate the move from traditional financial institutions to these startups, or it will not. In addition, the speed of execution of traditional banks will also determine the need to move to these startups.
What is your organization doing differently to adapt to these trends? At Path Solutions we were early to realize the impact of Industry 4.0 as a technological and also a social revolution. We started investing in enabling technologies such as Mobility and Cloud as early as ten years ago, and since added technologies such as AI and Blockchain. Before, most of our focus was on how to add functionality to our platform and make the system richer. Since then, our focus changed to how we can utilize the technology to open our platform, hide complexity and introduce simplicity to the customer experience and build intelligence into our services by employing new technologies such as AI in analytics.
W h a t a re t h e s i g n i f i c a n t challenges confronting the banking sector across the GCC region currently? And how do you
Banking and Finance news in the MEA market
Mohammed Kateeb, Group Chairman & CEO, Path Solutions
expect these to pan out in the last quarter of the year? We have many challenges confronting the region in the short to medium-term; to name some, the geopolitical situation in the region, the US presidential election, the COVID-19 crisis and its impact on performance and budget constraints in GCC government spending, which has always been one of the main engines of growth for the financial sector. I believe the fourth quarter will be unpredictable with slight improvements from opening up some economies, but the second wave of COVID-19 continues to threaten recovery.
How do you envision the future of banking, and if I were to sit down with you again six months from now do you think you will give me the same answer? The answer to this question has been consistent for the last couple of years, although things are accelerating this year because of COVID-19, I believe a new financial ecosystem is being created that is open, fully digital and with few boundaries. Banks’ roles will change, each playing a different part in this ecosystem based on the institution’s core strength. We will move away from the one-stopshop concept for our financial services and utilize the whole global ecosystem that serves us best.
REGULATION AND COMPLIANCE TECHNOLOGY
Regulation & Compliance in GCC Amid sweeping regulatory changes, the GCC financial services sector is focusing on digital transformation, convergence, and disruption from an array of non-traditional competitors— while meeting greater demands for trust and transparency
T
he GCC financial service sector is the backbone of economic development and reform agendas currently underway across the region and governments know that a strong, resilient financial services sector is critical to accomplish this mission. According to Deloitte, as a region known for its financial services and energy interests (both of which require a high degree of confidentiality of the information) the Middle East represents an attractive target for cybercriminals. Amid new revelations of high-profile global banks processing payments linked to allegedly illicit funds in a series of articles dubbed “FinCEN Files”, Gulf regulators are likely to beef up their fight against money laundering in a region that is home to some of the world’s renowned financial centres.
Regulation & compliance trends in GCC The outbreak of the novel coronavirus pandemic (COVID-19) ushered in significant changes that demanded l a rg e s c a l e i n v e s t m e n t i n n e w technologies to ensure compliance in the financial service industry. “As technology reshapes financial services, regulatory, risk and compliance strategies must continue to evolve,” said EY.
22
The introduction of remote working and the digitalization of the entire delivery chain from customer interaction to back end processing brought a whole set of challenges for the industry given how cybercriminals can thrive in conditions of uncertainty. Banks and fintech firms are being confronted with a difficult task of balancing the traditional approach to risk management with the need to respond quickly to a crisis that had thrown their operating environment into a turmoil. Despite the impact of coronavirus on the industry, there is an increased focus in open connected banking as well as the adoption of blockchain. On the regulatory front, GCC regulators have been increasing scrutiny on Anti-Money Laundering (AML), Counter-Terrorism Financing (CTF), and Know-Your-Customer (KYC) compliance. “Market changes are only going to accelerate as new paradigms come into effect,” said Stephane Niango, Managing Partner, Arqitek. The establishment of national-level e-KYC and AML compliance systems is expected to bridge the gray areas where regulators operate and where institutions are required to conform to their policies. KPMG said that as regulatory bodies advocate cybersecurity measures as a
Banking and Finance news in the MEA market
priority, progressive banks and fintechs recognizes that it is not merely a ‘technology problem’ but a wider business challenge that requires business ownership and strategic development.
Challenges in compliance Failing to keep up with the latest rules and regulations governing the industry has proven to be very costly for several banking institutions and fintechs that find themselves out of compliance. In January, Fenergo released its report on financial institution fines which showed that global penalties total $36 billion for non-compliance with AML, KYC, and sanctions regulations. Amid sweeping regulatory changes, the GCC financial services sector is focusing on digital transformation, convergence, and disruption from an array of non-traditional competitors while meeting greater demands for trust and transparency. The evolving regulatory landscape is expected to open the door to increased scrutiny, greater compliance, and significantly higher cost. However, the new rules of the game can also deliver significant new investment opportunities for managers and investors. Ashar Nazim, the founder, and CEO of Aion Digital identified the lack of an effective regulatory ecosystem as one of the biggest challenges faced by financial institutions in the Gulf region, and to foster an environment promoting digital innovation and financial inclusion, regulators should go beyond passing laws and policies. GCC banks are collaborating with fintechs to facilitate technology implementation, to d e c re a s e c osts , i m p rove customer experience, and enhance their competitive edge.
36 FORTUNE
GLOBAL 500 FINANCE COMPANIES DIGITALLY TRANSFORM WITH HUAWEI.
TOGETHER
REGULATION AND COMPLIANCE TECHNOLOGY
Challenges on the path to achieving impact Cormac Sheedy, Head of MENA Region, Fenergo sheds light on the importance of automation in driving efficiencies and how Fenergo is supporting over 80 financial institutions globally to meet their specific technology and regulatory requirements
Cormac Sheedy, Head of MENA Region, Fenergo
G
iven the increasing adoption of technology in the wake of the COVID19 pandemic outbreak, where is technology playing a significant role in compliance risk management currently?
The onset of the pandemic has forced
24
financial institutions to accelerate digital transformation. Many banks haven’t managed to strike the right balance of compliance against the need to be profitable. In times of crisis like today, financial institutions must be able to prioritize customers’ needs. To deliver a more customer-centric experience on a sustainable basis though, they need to be technologically set up for compliance success. We see a lot of banks implementing a digital know your customer (KYC) backbone, a compliance infrastructure across their entire group, for all business lines, irrespective of the different channels. Digital KYC empowers the efficient management of all KYC policies and regulatory compliance and can be digitally enabled to become the biggest opportunities for financial institutions to transform their customer experiences, and future-proof themselves. Especially now, financial institutions need to build digital onboarding workflows and client lifecycle journeys, with the customer in mind to ensure KYC information is current and accurate.”
Banking and Finance news in the MEA market
As an organization, what are some of the most advanced i n n ova t i ve a p p ro a c h e s to compliance risk management you have implemented? Fenergo supports over 80 financial institutions around the world with technology solutions that meet their specific technology and regulatory requirements. In the GCC region, Fenergo is supporting Bahrain’s Electronic Network for Financial Transactions (BENEFIT) with a blockchain-integrated KYC utility. Financial institutions that subscribe to BENEFIT can instantly complete KYC and Anti-Money Laundering (AML) compliance procedures when onboarding new individual and corporate customers through the Fenergo-powered KYC hub and rules engine utilizing blockchain. The centralization of customer data removes the need for duplicate requests for information, enabling financial institutions to onboard new customers and products swiftly and seamlessly. The elimination of manual processes reduces costs and improves operational
efficiencies, ultimately optimizing customer experiences.
What trends do you see among financial institutions in the MENA region and how do you compare them to other parts of the world? There is a growing focus on regulation and compliance in the region and this has created an unprecedented demand for fintech and regulation technology. The cost of this regulation for these banks is also an issue, with many spending millions of dollars to remain compliant. They go through the internal debate to build or buy, but more of them realize that “futureproofing” their institution cannot be easily achieved internally. Banks came to terms with the dramatic changes that occurred in the early stages of lockdown, as branches closed and staff worked from home, many of them quickly identified the need to offer their clients a proper remote digital experience.
W h a t d o yo u s e e a s t h e greatest challenges for the financial services industry in enforcing compliance? Significant physical infrastructure and
manual processes for compliance are not resilient and are prone to error. This absence of automation inhibits a financial institution’s ability to effectively meet regulatory obligations and makes them liable to fines that are costly in both financial and reputational terms. The key is in driving efficiencies through automation. By leveraging bestof-breed technology, financial institutions can provide a strong framework for governance, risk and control. By replacing manual compliance and onboarding processes with automation, employees can focus on value-added services and significantly reduce errors which have huge reputational, regulatory and cost implications.
How do you envision financial regulation and compliance in the future?
THERE IS A GROWING FOCUS ON REGULATION AND COMPLIANCE IN THE REGION AND THIS HAS CREATED AN UNPRECEDENTED DEMAND FOR FINTECH AND REGULATION TECHNOLOGY. Cormac Sheedy, Head of Mena Region, Fenergo
In today ’s challenging business environment with increasing uncertainty and widespread lockdowns, FIs must show resilience in order to support their customers. More and more banks are embracing the cloud for client onboarding and KYC/AML compliance to achieve agility, drive scalability, lower costs and increase resilience. mea-finance.com
25
REGULATION AND COMPLIANCE TECHNOLOGY
Trends and challenges in regulation and compliance Wael Salem, Chief Executive Officer, Tradesocio, details the coming changes, trends and requirements of regulation and compliance.
G
iven the increasing adoption of technology in the wake of the COVID19 pandemic outbreak, where is technology playing a significant role in compliance risk management currently?
Artificial intelligence is the technology used for compliance automation. These software provides organizations with workflow capabilities related to compliance, including self-assessments, control analyses, corrective action planning and controls testing. By automating these processes, compliance automation replaces traditional paperbased compliance checks and manual reviews, allowing fully digital onboarding. Tools that monitor compliance start by receiving an organization’s security policies. Any regulations that involve a company’s industry, configurations, accounts, inventories, and security m e a s u re s a re c o p i e d i n to t h e compliance automation software to detect violations. This knowledgebase of compliance regulations and security
26
standards can be changed or updated at any time.
As an organization, what are some of the most advanced i n n ova t i ve a p p ro a c h e s to compliance risk management you have implemented? Our solutions are integrated with a powerful ERP solution that allows management of internal business processes, such as sales, retention, support, accounting, finance, and compliance. We provide the flexibility to accept and validate different types of documentation. Our digital KYC and compliance checking solutions have the ability to onboard more than 90% of new customers.
What trends do you see among financial institutions in the MENA region and how do you compare them to other parts of the world? There is a race towards digital solutions and an increasing competition amongst financial institutions in the GCC. Financial institutions are considering partnerships
Banking and Finance news in the MEA market
with fintech companies to deliver relevant flexible solutions that adapt to market products, compliance and regulatory changes. Paperless transactions mean there is an increasing trend in secured and automated onboarding of new clients. We are also seeing more onestop service providers that offer multiple services from one platform, services such as money exchange, investments, and portfolio management, while the increased use of AI and ML is helping with costs and risk management. In short, there is a race towards digital for scale, cost-efficiencies and user experience optimisation. More fintechs are emerging across the region and competition from the digitised non-traditional financial companies are coming to the fore. The potential for competition from Big Tech entering the financial sector is also driving financial institutions to upscale their digital technologies to survive and be competitive. Moreover, with the work-fromhome environment, wealth management providers also need to empower their
management solution, from development, hosting and maintenance, to security and post-sales technical support. Laws and regulatory requirements are updated continuously, verifying compliance requirements, managing third-party risks and catching potential weaknesses. This reduces the likelihood of encountering compliance fines or breaches and minimizes the number of inadequate or inaccurate reporting mistakes.
What do you see as the greatest challenges for the financial services industry in enforcing compliance?
Wael Salem, Chief Executive Officer, Tradesocio
wealth managers with the right digital infrastructure. Legacy financial advisors and managers must also embrace digitalisation and need to expand their remit to the segments below HNWIs and offer more financial inclusiveness.
What type of ongoing monitoring and auditing processes have you put in place to assess the effectiveness of your compliance programs? We partner with our clients, effectively an extension of their technology teams. We work with them very closely, often on a day-to-day basis, to help them make most of our solutions. We track, analyse, and run our services in an efficient semi-automated manner. We offer the complete end-to-end financial
TRADITIONALLY, COMPLIANCE IS CARRIED OUT POST TRANSACTION, WHEN IT SHOULD BE A REQUIREMENT BEFORE THE EXECUTION OF THE TRANSACTION.
One of the major issues is the lack of trust financial institutions have in embracing fintech solutions. Traditionally, compliance is carried out post transaction, when it should be a requirement before the execution of the transaction. Another issue is defining compliance ruleset according to the customer segment. For example, of a customer does not want to invest in certain industries or countries such as oil or Russia—the ruleset needs to be multi-tiered. There is also a dearth in the skillset required in compliance risk management, making the changing legal requirements, trade, country, individual sanctions a more difficult landscape to grasp.
How do you envision financial regulation and compliance in the future? The increased adoption of digital customer onboarding will come under regulatory bodies scrutiny and there will be more red tape surrounding it— additional compliance information will soon become a requirement. However, with the increase adoption of digital onboarding solutions, the digital acceptance and approval of submitted documentation will increasingly become the norm. The potential of additional regulatory reporting rules and guidelines could also be issued. I also expect to see a more widespread use of AI and biometrics identification and verification. mea-finance.com
27
REGULATION AND COMPLIANCE TECHNOLOGY
The technology bringing sanctuary and surety to finance Jean-Paul Mergeai, Managing Director of Temenos for Middle East & Africa defines the essential role of technology in compliance with regulations and risk management. Jean-Paul Mergeai, Managing Director, Middle East & Africa
G
iven the increasing adoption of technology in the wake of the COVID19 pandemic outbreak, where is technology playing a significant role in compliance risk management currently?
Financial Crime Mitigation (FCM) technology is growing resulting from Covid-19, with heightened levels of fraud, including cyber fraud, as criminals exploit the pandemic. It’s a big problem for victims, for authorities and for banks, with their legal responsibility to protect their customers’ money and data and prevent money laundering.
As an organization, what are some of the most advanced innovative approaches to compliance risk management you have implemented? In many areas of banking, cloud and SaaS technology is a catalyst for exciting innovations in compliance; lower infrastructure costs, developing products faster with greater resilience, scalability and security. This year, Temenos announced a joint effort with Microsoft to enable access to its AI-powered FCM SaaS solution. Deployable in weeks, it allowed banks to protect their customers and their organization from financial crime increases during the pandemic, particularly as banks moved to remote working for staff.
What trends in regulation and compliance do you see applying 28
to financial institutions in the MENA region? Th e b i g t re n d i s d i g i t i s a t i o n i n compliance, such as electronic customer identification. Banks are investing in the digitisation of their compliance function as an integral part of customer onboarding. In the UAE, national digital IDs operate, allowing banks and their tech providers to implement paperless “know your customer” authentication to accelerate on-boarding new customers. Initiatives like “smart Dubai” aim to remove paperwork entirely and provide the data on which to build better services for residents.
What type of ongoing monitoring and auditing processes have you put in place to assess the effectiveness of your compliance programs? Compliance costs directly affect the profit of banks (estimated at $270bn per year) meaning devoting fewer resources to innovation and risk. Expenditure is unavoidable as compliance with regulations is mandatory. Governance, risk, and compliance account for almost 20% of banks operating costs and noncompliance has severe implications including stiff penalties. Over $350bn were paid out by banks for non-compliance and compliance breaches in the last decade. Temenos offers significant help reducing compliance overheads. We leverage our wide client base and extensive experience to offer packaged toolkits
Banking and Finance news in the MEA market
and solutions to help our clients remain compliant with changing regulatory and business practice requirements. All the regulatory compliance solutions are pre-integrated into standard Temenos software, streamlining their adoption and subsequent usage.
What do you see as the greatest challenges for the financial services industry in enforcing compliance? Demand for financial compliance and the increasing levels and types of financial crime put huge pressure on banks. Legacy processes are complex, inefficient and error prone. High levels of false positive rates exacerbate this problem, increasing recruitment costs to address the issue.These challenges mean banks face reputational risk, fines, costs and losses to fraud.
How do you envision financial regulation and compliance in the future? A major regulatory opportunity (and challenge) for our industry is Open Banking. Having a system using AI, focusing on realtime behavioural analysis is essential. These systems build user and customer profiles to detect and stop suspicious transactions, considering elements such as transaction type, amount, currency and frequency. Parameters can be combined and compared to ‘usual behaviour’ or predefined patterns, elements giving banks the ability to stop suspicious transactions before funds are transferred.
A Middle Eastern law firm built for purpose
Whether it's on the links or in the boardroom, Amereller is single-mindedly focused on our client's toughest challenges. BAGHDAD • BASRA • BERLIN • CAIRO • DUBAI • ERBIL • MUNICH • RAS AL KHAIMAH • TRIPOLI www.amereller.com
REGULATION AND COMPLIANCE TECHNOLOGY
How technology will increasingly manage regulation and compliance Enacting regulation and compliance obligations is vital to businesses. Stephane Niango, Managing Partner, Arqitek, answers questions about the increasingly important role technology will play in helping financial institutions manage this important aspect of their activities.
G
iven the increasing adoption of technology in the wake of the COVID19 pandemic outbreak, where is technology playing a significant role in compliance risk management currently? It is widely recognised that COVID-19 has accelerated the move towards digital. Projects concerned with digital onboarding in particular are in abundance across the financial sector. However, the true meaning of digital remains poorly understood. At a deeper level we are all witnesses to the emergence of the digital economy. The digital economy is driven by lower transaction costs and increased agility. In this context digital enterprises must look beyond front-end services transformation. The digital enterprise must transform across multiple domains to retain competitiveness. Governance / Risk and Compliance (GRC) is one of several critical domains to transform. It is critical because i) most financial institutions expend more 20% of resources in oversight of some form and ii) GRC is a certainly a major source of friction within the enterprise.
30
This is all increasingly critical because markets and regulations will continue to evolve. Open Banking is taking form across the region. We also have Big Tech to consider and meanwhile cloud is helping everyone move faster. All these trends bring their own opportunities and challenges and imply regulatory evolution. So, compliance must move away from the traditional, paper-based approach to enable evolution.
Stephane Niango, Managing Partner, Arqitek
The role of technology is therefore to automate compliance to such a level that the inefficiencies and the friction are taken out of the equation. This is entirely achievable today to the extent that regulatory requirements can now be electronically associated all the way through to operational implementation. C h a n g es i n re g u l a t i o n s c a n b e immediately traced to the operational level and non-compliances can be automatically highlighted.
Banking and Finance news in the MEA market
As an organization, what are some of the most advanced i n n ova t i ve a p p ro a c h e s to compliance risk management you have implemented? We are performing work where we are driving automation all the way from compliance planning into operational platforms, including cloud platforms such as Azure. Imagine a scenario where regulatory requirements are immediately traceable through to the implementation of rules within operational systems. A change in a regulatory requirement can be immediately translated into changes to underlying platform configurations. This concept is becoming increasingly viable as cloud platforms enable the
configuration of rules in accordance with compliance requirements. Using this and similar approaches changes can be promulgated across the enterprise to impact both manual and automated processes. The concept of the written standard operating procedures document is soon to be banished to the archive.
What trends do you see among financial institutions in the MENA region and how do you compare them to other parts of the world? The challenges for the MENA region and other regions are in many ways similar. Digital transformation is an imperative for any financial institution anywhere on the globe. However, not all are responding to the true meaning of digital. Digital window dressing is taking place with new front-end services - but that is all. This is true in MENA but the same can be said elsewhere. Regulators are recognising this and are encouraging the transition towards digital. Its important because global competitiveness depends on financial industry becoming digital. They are therefore placing a greater emphasis on Digital IT and IT modernization. This is being reflected in new regulatory requirements being directed towards the management of IT itself. Other significant trends include the move towards Open Banking. MENA is some steps behind. However, central banks recognize the economic imperative behind Open Banking. Hackathons are already taking place under the sponsorship of regional banks. The standards and regulations to enable this new community are being formed. Overall, we can expect to see an acceleration of the change already taking place. Truly Digital financial institutions should be pushing the envelope rather than being on the back foot. We suggest a firm drive towards Open Banking, cloud adoption and Digital IT Governance. Even if initial steps are incremental it is critical that the enterprise is actively exploring the digital future.
What type of ongoing monitoring and auditing processes have you put in place to assess t h e ef fe ct i ve n es s of yo u r compliance programs? At this stage we are advocating a focus on compliance automation. If this is done correctly then monitoring becomes a lot less effort intensive. This is because the linkages are there, and reports can be automatically generated to expose gaps. Once this is achieved then the financial institution can take a more forward-looking stance. Where are regulatory trends taking us and how do we get ahead of the market? The aim is really to establish the front-foot position. Control regulatory requirements
How do you envision financial regulation and compliance in the future? Market changes are only going to accelerate as new paradigms come into effect. The benefits of cloud are only now being materialized in the MENA region. Open Banking will generate a whole new plethora of market changes and evolutions. The pace will increase and so will the complexity. Financial institutions will be interacting digitally with an increasing diversity of actors. Service complexity will increase, and the implications of regulatory requirements will be increasingly complex to resolve.
WE HELP ENTERPRISES TRANSFORM THROUGH THE PRACTICAL APPLICATION OF DIGITAL-ERA BEST PRACTICES. WE BELIEVE THAT THE DIGITAL ENTERPRISE MUST ARCHITECT TO BE SUCCESSFUL. before they control you! From there you are equipped to venture forwards to take on the new paradigms with greater confidence and awareness.
What do you see as the greatest challenges for the financial services industry in enforcing c o m p l i a n c e? A n d f ra m i n g these challenges would you do things differently? The greatest challenge is around handling the complexity and doing so quickly. Manually translating multiple regulatory requirements (the ‘Why’) into process and controls (the ‘What’) and implementing them (the ‘How’) takes significant effort. Many banks are investing more than 20% of resources in oversight in some form or other. A holistic approach is required that is driven by data and that links to the underlying architecture.
So, in many respects the future of compliance is about enabling agility. Regulation and compliance must move from the traditional, paper-based approaches to automated approaches that reach all the way through to operational platforms. Ultimately, we see the emergence of the enterprise control tower where the enterprise architecture, internal and external data are brought together to h e l p t h e e nte r p r i s e s e e n ew opportunities and to respond rapidly to those opportunities through agile projects and initiatives. A key input to the control tower is of course the regulatory requirements. We use the term Transformation Management Platform (TMP) to embody this concept. Here we are referring to the automation of transformation itself. Transformation on a continuous and automated basis. mea-finance.com
31
REGULATION AND COMPLIANCE TECHNOLOGY
Key developments in the regions’ compliance and regulation technology Founder and CEO, of Aion Digital, Ashar Nazim offers clear answers to questions about compliance technology in the region.
frameworks, plus stringent technology standards policies.
As an organization, what are some of the most advanced i n n ova t i ve a p p ro a c h e s t o compliance risk management you have implemented? Ashar Nazim, Founder and CEO, Aion Digital
G
iven the increasing adoption of technology in the wake of the COVID19 pandemic outbreak, where is technology playing a significant role in compliance risk management currently?
COVID-19 has shown that social media hacks, data theft, banking fraud, AML and KYC have emerged as the most targeted regulator y and compliance risks areas. The technologies that can greatly assist in mitigating these risks are social biometrics, live facial recognition, dual-factor authentication, artificial intelligence, blockchain, cybersecurity
32
Given changes to a work-from-homemodel, we must deploy technology and security controls for access m a n a g e m e n t , d a ta p r i va cy a n d malware protection and cybersecurity in general. Aion Digital has integrated Compliance and IT functions to help our employees and businesses function seamlessly and uninterrupted. Our internal infrastructure operates over the cloud with advanced compliance risk and threat management with active detection and alert mechanisms for our network including next-gen antimalware technologies and data loss prevention rules. We recommend the cutting-edge technologies mentioned earlier and further encourage clients to raise awareness with Cyber hygiene training as people are the weakest link in security and compliance chain.
Banking and Finance news in the MEA market
What trends do you see among financial institutions in the MENA region and how do you compare them to other parts of the world? There are 3 major trends in the MENA region that are matching or exceeding global expectations. • E stablishment of national level e-KYC and compliance AML systems are bridging the gray areas where re g u l a to rs o p e ra te a n d w h e re institutions are required to conform to their policies. • A growing reliance on AI driven c l o u d - b a s e d te c h n o l o g i es t h a t support compliance efforts. AI threat matching is more efficient, low cost and sustainable in comparison to manual detection. • I nternationally recognized AI driven compliance risk rating and scoring boards adoption, that learn by 3 core inputs; demographics, activities, and external data fetching to create airtight, constantly improving results mitigating risk and maximizing peace of mind.
What type of ongoing monitoring and auditing processes have you put in place to assess the effectiveness of your compliance programs? Risk management is part of all projects across our organization with internal audits carried out on an ad-hoc basis.
virtual framework without the burden of heavily regulated mandates using mitigated customer data. This allows us to assist our licensed clients comply with new local regulation on the role of data-play, authentications for customer consent, and contingency planning for cybersecurity risks.
THE FINANCIAL SERVICES INDUSTRY IS GROWING AT AN EXPONENTIAL RATE AND REGULATORY AGENCIES MUST BE ABLE TO KEEP UP THE PACE. We also actively engage with regulatory bodies and key industry decision makers to test and accelerate the newest legislative digital initiatives within the financial industry. As part of the Central Bank’s regulator y requirements, we constantly refine the scope of our projects to fit within a
W h a t d o yo u s e e a s t h e greatest challenges for the financial services industry in enforcing compliance? The biggest challenge faced in the GCC is a lack of an effective regulatory ecosystem as seen in the EU. To foster an environment promoting digital
innovation and financial inclusion, we need to do more than pass policies and rulings. There must be established a system of checks and balances, adopting tools to efficiently monitor, i nve st i g a te a n d p ro s e c u te n o n compliant activity within the financial services industry.
How do you envision financial regulation and compliance in the future? The financial services industry is growing fast, and regulatory agencies must be able to keep up. In future banks will be adopting new technology faster than before and telecommunication companies and goods retailers shifting towards providing financial services. Therefore, regulators in the GCC and the rest of the world will have to collaborate more with external stakeholders to be able to utilize their strengths while engaging with subject matter experts in recognizing and accommodating their limitations. mea-finance.com
33
Advertorial Advertorial
J EJ RE SR ES YE Y
• •
L OL N OD NO D N O N
• •
D U D BU AB IA I
• •
M M U M U M B AB IA I
• •
H O H N OG N GK O KN OG N G
• •
S HS A HN AG NH GA H IA I • •
N EN W E WY O YR O KR K
AAFuture-Proof Future-ProofInvestment Investment Fund FundPlatform Platformfor for
Middle Middle East East Investors Investors
ByBy Faizal Faizal Bhana Bhana Director, Director, Middle Middle East, East, Africa Africa and and India, India, Jersey Jersey Finance Finance
Over Over aa period period ofof almost almost 6060 years, years, Jersey Jersey has has developed developed aa well-respected well-respected and and forward-thinking forward-thinking funds funds sector. sector. In In thethe first first quarter quarter of of 2020, 2020, thethe total total value value of of fund fund assets assets serviced serviced in in Jersey Jersey rose rose to to reach reach a new a new record record high high of of almost almost US$480bn US$480bn with with alternative alternative funds, funds, including including private private equity, equity, real real estate estate and and infrastructure, infrastructure, showing showing stellar stellar growth growth to to now now represent represent approaching approaching 90% 90% of of Jersey’s Jersey’s total total funds funds business. business. In In a world a world where where regulatory regulatory initiatives initiatives areare making making cross-border cross-border investing investing more more complex, complex, where where private private investors investors areare looking looking at at alternatives alternatives asas they they seek seek diversification diversification asas well well asas returns returns and and asset asset protection, protection, and and where where family family offices offices areare increasingly increasingly disrupting disrupting thethe alternatives alternatives space, space, Jersey’s Jersey’s expertise expertise is is setset to to become become increasingly increasingly attractive. attractive.
Jersey JerseyPrivate PrivateFund Fund (JPF) (JPF) Jersey’s Jersey’s forward-thinking forward-thinking approach approach has has ensured ensured thethe jurisdiction jurisdiction remains remains at at thethe forefront forefront of of thethe funds funds sector, sector, forfor example example in in 2017 2017 it it introduced introduced thethe Jersey Jersey Private Private Fund Fund (JPF). (JPF). The The JPFJPF offers offers a streamlined, a streamlined, effective effective and and proportionate proportionate product product forfor privately privately offered offered alternative alternative investment investment funds. funds. This This fast-track fast-track regime regime has has proven proven very very popular popular among among private private investors investors and and family family offices offices in in thethe GCC GCC looking looking to to co-invest co-invest and and there there areare now now more more than than 330 330 JPFs JPFs established. established.
ForFor more more information, information, please please contact contact a member a member of of thethe Jersey Jersey Finance Finance team team on:on: +44 +44 (0)(0) 1534 1534 836000 836000
jersey@jerseyfinance.je jersey@jerseyfinance.je
linkedin.com/company/jersey-finance linkedin.com/company/jersey-finance
jerseyfinance.je jerseyfinance.je
youtube.com/jerseyfinance youtube.com/jerseyfinance
@jerseyfinance @jerseyfinance
K
Advertorial Advertorial
Global Globalsolution solution
Stability Stability
It’sIt’s a trend a trend we’re we’re particularly particularly seeing seeing across across thethe Gulf Gulf region, region, a a market market where where Jersey Jersey has has considerable considerable experience experience built built upup over over decades decades in in supporting supporting thethe private private wealth wealth structuring structuring needs needs of of HNW HNW and and UHNW UHNW families. families.
When When it comes it comes to to fund fund structuring, structuring, thethe clear clear indications indications areare that that investors investors in in thethe GCC GCC areare looking looking forfor jurisdictions jurisdictions that that can can offer offer expertise, expertise, certainty certainty and and stability, stability, with with nono regulatory, regulatory, legal legal oror economic economic surprises surprises – qualities – qualities that that have have become become even even more more important important in in light light of of COVID-19. COVID-19.
Those Those families families areare now now looking looking at at what what thethe alternative alternative investment investment space space can can offer, offer, and and Jersey’s Jersey’s ability ability to to provide provide a global a global solution solution forfor alternative alternative funds funds has has put put it in it in a strong a strong position position to to support support that that demand. demand. Sitting Sitting within within Europe, Europe, not not part part of of thethe UKUK oror EU,EU, but but with with strong strong ties ties to to both, both, Jersey Jersey is is a stable, a stable, neutral neutral international international finance finance centre centre (IFC), (IFC), with with robust robust regulatory regulatory and and legislative legislative regimes, regimes, decades decades of of experience, experience, a commitment a commitment to to high high service service quality, quality, and and one one of of thethe largest largest specialist specialist workforces workforces (around (around 14,000 14,000 professionals) professionals) of of any any IFC. IFC. Market Market access access is is anan area area where where Jersey Jersey can can provide provide a particularly a particularly strong strong solution, solution, making making distribution distribution easy easy wherever wherever a manager, a manager, assets assets oror investors investors areare based. based. Jersey Jersey can can act, act, forfor instance, instance, asas a gateway a gateway to to thethe UKUK and and EUEU byby offering offering seamless seamless access access through through flexible, flexible, cost-effective cost-effective and and tried-and-tested tried-and-tested private private placement placement regimes regimes – both – both now now and and after after Brexit. Brexit. Indeed, Indeed, thethe number number of of managers managers choosing choosing Jersey Jersey to to structure structure their their EU-focussed EU-focussed funds funds in in this this way way has has grown grown year year onon year. year. AtAt thethe same same time, time, Jersey’s Jersey’s close close constitutional constitutional ties ties with with thethe UKUK mean mean that that it is it is well well placed placed to to offer offer access access to to thethe UKUK too. too.
AtAt thethe same same time, time, asas a forward-thinking a forward-thinking jurisdiction, jurisdiction, Jersey Jersey continues continues to to evolve evolve and and embrace embrace innovation. innovation. The The launch launch of of thethe Jersey Jersey Private Private Fund Fund (JPF) (JPF) in in 2017 2017 is is a case a case in in point. point. It aimed It aimed to to give give small small numbers numbers of of sophisticated sophisticated investors investors a vehicle a vehicle offering offering quick quick regulatory regulatory approval, approval, and and it has it has been been incredibly incredibly popular popular – including – including among among private private investors investors and and family family offices offices in in thethe GCC GCC looking looking to to co-invest. co-invest. There There areare now now more more than than 330 330 JPFs JPFs established. established. AsAs demand demand forfor alternative alternative fund fund solutions solutions continues continues to to rise rise across across thethe GCC, GCC, Jersey’s Jersey’s deep deep knowledge knowledge of of thethe region, region, together together with with itsits stable stable platform, platform, focus focus onon service service quality quality and and commitment commitment to to innovation innovation is is positioning positioning it strongly it strongly to to support support thethe bespoke bespoke needs needs of of investors. investors.
U KU K
Beyond Beyond Europe, Europe, meanwhile, meanwhile, managers managers from from markets markets including including thethe USUS and and Africa Africa asas well well asas thethe GCC GCC areare looking looking to to future-proof future-proof their their funds funds through through a jurisdiction a jurisdiction that that can can offer offer them them long-term long-term guarantees guarantees – and – and Jersey Jersey ticks ticks that that box. box.
J E JRESRESYE Y
What Whatsets setsJersey Jerseyapart? apart? Raising Raising investor investor capital capital Jersey Jersey offers offers a safe a safe and and familiar familiar business business environment environment forfor European European investors investors across across institutional, institutional, high-net high-net worth worth and and pension pension funds,and funds,and meets meets thethe market market access access requirements requirements under under thethe AIFMD. AIFMD.
F RFARNACNEC E
Regulatory Regulatory framework framework Jersey Jersey has has a strong a strong regulatory regulatory framework framework built built around around governance, governance, tax tax transparency transparency and and compliance, compliance, which which is is recognised recognised byby leading leading European European countries. countries.
Speed Speed toto market market
Taxation Taxation
Jersey Jersey has has a straight a straight forward forward and and flexible flexible funds funds regime, regime, allowing allowing funds funds to to bebe setset upup in in asas little little asas 4848 hours. hours.
Jersey Jersey is is tax tax neutral neutral with with 0%0% corporate corporate tax, tax, has has nono stamp stamp duty duty onon thethe transfer transfer of of shares, shares, and and is is included included onon thethe OECD OECD white white list. list.
COVER INTERVIEW
Shaping the future of financial services Mashreq has a history of leading the industry in the adoption of new financial services technology. Here, Tarek El Nahas, Senior Executive Vice President and Head of the International Banking Group, tells MEA Finance how their pioneering spirit has equipped the bank to take the Covid-19 crisis in its stride, providing uninterrupted services, and positioned it to become a significant force in the industry. By Adrian Murdoch
M
ashreq Bank has talked about behaving like a BigTech firm with a banking license. What do you mean by this?
We firmly believe that banks must adopt a model similar to that of Big Tech firms, as a result of the huge shift in changing expectations from customers, accelerated by rapid developments in technology. Even before COVID-19 hit, customers expected banks to provide a similar digital experience as they receive when interacting with other large brands or online marketplaces – and these expectations have only increased further during the pandemic as people rely on digital channels for their day-to-day necessities.
36
Against this backdrop, at Mashreq, we consider it imperative to be at the forefront of technology, and we regularly collaborate with various Fintech firms; due to their expertise in technology and inherently lean structure which allows them to be more agile and innovative. This collaboration has led to numerous solutions which have enhanced the experience for our customers; in the areas of payments, wealth management, credit underwriting and Know Your Customer (KYC) processes. Banks that want to be at the forefront of innovation in the future will have to employ data analysts, data translators, digital marketers, social media experts, and implementation specialists in the areas of big data analytics and robotics.
Banking and Finance news in the MEA market
At the same time, employees with more traditional skill-sets will need training to develop the skill sets required to function in a digital-first banking world. This will enable them to play key roles in translating data, leading teams, closing the gap between data and technology, and providing a bridge between the new and old. We also believe that providing convenient, fully digital platforms (from end-to-end) is going to be the way of the future. Ultimately, most consumers want platforms that provide transparency, convenience and simplicity. This is why we launched market-first platforms such as Mashreq NEO and NEOBiz – fully digital banks in the UAE geared towards individuals and SMEs respectively.
One of the key challenges with digital banking is not so much the banking rather, it is the regulation. Has it kept up? What still needs to be done? There will certainly be increased scrutiny from regulatory bodies to firstly modernize digital banking operations more efficiently, and secondly manage important and complex issues around the protection of customers. Cybersecurity is one important aspect, due to the growing volume of cyberthreats during the pandemic worldwide. Therefore, it is
critical for banks to integrate information security processes within their risk management framework. In the UAE, this is something that we have collaborated on extensively with the UAE Banks Federation (UBF) to try and mitigate such concerns. Another area that has become more prevalent recently is usage of data – as this is an area that is becoming more regulated around the world. The authorities are also carefully studying developing technologies such as AI, cloud computing, crypto assets and more.
While keeping up with the rapid pace of technology is undoubtedly a huge challenge, it is our belief that the regulators and industry have done very well at striking the right balance between risk and innovation. In the UAE in particular, the government continuously keeps an ongoing dialogue with the public and private sector to discuss ways to tackle these complex issues. Ultimately, the most important thing going forward is that there is strong protection for customers, a level playing field which ensures that financial institutions all adhere to the same regulations, and that there is a culture of transparency and fairness in the sector.
You continuously innovate. To what extent is this being driven by the bank and to what extent is it being driven by your customers?
Tarek El Nahas, Senior Executive Vice President and Head of the International Banking Group, Mashreq Bank
Innovation has always been a major part of Mashreq’s philosophy since the very beginning, due to the bank’s pioneering spirit to deliver products that meet customers’ ever-changing needs. Historically, Mashreq was the first bank in the UAE to offer chipbased credit cards, ATM dispensers, digital point-of-sale readers, as well as provide a fully dedicated mobile banking app for corporates. More recently, as part of the bank’s wider digital strategy, we have introduced a number of measures over the past two years which have seen digital transactions increase significantly. These solutions ensured that the groundwork was already in place for us to successfully handle the disruption caused by the COVID-19 pandemic. Ironically, the pandemic has resulted in more people having an urgency to augment their lifestyles with digital tools and many of our clients that were historically resistant to onboard themselves on digital platforms, want to do so now. One example is the success of our digital platform called matrix – which is our GTB trade and cash management platform and provides our corporate mea-finance.com
37
COVER INTERVIEW
clients with trade transactions, cash management, liquidity pooling and trade tracker capabilities. In the past, people weren’t necessarily signing on for the digital platform or all of its services - but today we have successfully on-boarded more than 800 individual companies to these digital platforms.
How has Mashreq Bank responded to the Covid-19 pandemic? Do you think that it is has helped the adoption of digital banking? As soon as the pandemic occurred, our immediate priorities were focused on protecting the welfare of our customers
The pandemic taught us that businesses must be able to ensure that their operations are able to pivot and change direction seamlessly in line with shifts in the environment as well as changing customer preferences. During this time, we have definitely seen a large spike in digital transactions – and have noticed that customers are benefitting from the increased convenience that our digital channels can offer. While it is difficult to know exactly how much customer behaviour will change in the future, we do think that more people will stick to these digital services, and this will continue to be a focus area for us, given our longstanding expertise and offerings.
INNOVATION HAS ALWAYS BEEN A MAJOR PART OF MASHREQ’S PHILOSOPHY SINCE THE VERY BEGINNING, DUE TO THE BANK’S PIONEERING SPIRIT TO DELIVER PRODUCTS THAT MEET CUSTOMERS’ EVERCHANGING NEEDS. and employees as well as ensuring that we were able to provide services to our customers as normal, without any disruption. As a result of our agile strategy and robust business continuity planning, we managed to increase our network usage and quickly equip all our staff with special technology kits, remote conferencing facilities, controls and guidelines, specific to each business unit. This ensured we were able to provide ongoing services with minimal interruptions. We also sanitized all branches in accordance with the regulations from the authorities and proactively communicated with all our customer segments, informing them about the ways that they continue to transact over our digital platforms.
38
It has been a challenging year economically with collapsing oil prices and regional downgrades from the ratings agencies. With diversification of the economy the watchwords for the GCC, how can Mashreq Bank help? The pandemic has brought unprecedented challenges on a global scale. However, we are certain that the UAE is well placed to handle this crisis due to factors such as diversification of the economy (which was already underway for the last few years), a high level of digital adoption amongst UAE banks, and a variety of initiatives and stimulus packages provided by the Central Bank of UAE quite early on. We recognize that as a leading bank in the region, we have a responsibility
Banking and Finance news in the MEA market
to support the economic revival – and the quick action from the Central Bank and the UAE’s leadership has enabled us to provide support packages to all our customer segments. These included benefits such as restructuring payment terms, interest rates and processing fees, as well as offering payment holidays and an extension of loan payments – which have provided our clients with some financial relief and stability during this period. Going forward, we continue to maintain an ongoing dialogue with the local authorities and look for ways to support all our customers, whether corporate companies or individuals.
What are going to be your priorities for 2021? And where do you see expansion opportunities for the bank? Our first priority is to continue supporting our customers and employees during this difficult time and in ensuring their well-being. Another area that remains incredibly important for us is continuing to develop our digital platforms and offerings, especially given our customers’ evolving reliance on digital solutions during this period. We will hence continue to invest in our digital infrastructure, which goes hand in hand in supporting innovation and empowering our staff with new products, processes and services in a faster and more efficient manner. We will also be upskilling our employees and redesigning some jobs to allow people to develop and grow within the bank, in line with technological advancements, and our wider branch transformation strategy. We also believe that there are opportunities for us to support numerous sectors within the economy that will soon undergo rapid acceleration in the future. Due to the increased focus on digitization brought about by the pandemic, trends that were taking place before have been accelerated. For example, in education, trends such as e-learning and online trainings, have increased significantly –
which means the structure of institutions, as well as fees could be impacted. Other industries that are rapidly changing and will continue to transform for good include e-commerce, healthcare, IT and logistics. These are areas we continue to pay attention to as a leading bank and will be ready to support with tailored solutions.
Mashreq is located in several countries outside the UAE. What services do you offer in other regions, and what are your immediate focus areas internationally? Mashreq’s international network spans eleven countries: The Kingdom of Bahrain, Kuwait, Hong Kong, India, London and New York, operate one branch each; Egypt has twelve branches in Cairo and Alexandria; and the State of Qatar has two branches in Doha. The Bank is also present in Pakistan, Bangladesh and Nepal through representative offices. We offer pre-dominantly corporate banking services in locations such as Bahrain, Qatar and Kuwait. Our largest operation internationally is in Egypt - where we provide both corporate banking as well as retail banking services and participate in many large syndication loans across the country. We also recently launched various financial packages aimed at supporting local communities impacted by COVID-19 in Egypt. At present the Bank’s branches in London, New York and Hong Kong are primarily focussed on financial institutions business. In New York we have direct membership of FED and CHIPS clearing systems and are recognized as a systemically important bank with a large share of USD clearing business. About two years back we ventured into corporate banking business in India through our Mumbai branch which was hitherto focused on FI business only. In a short span of time we can boast of having several top Indian corporates as our clients.
Mashreq’s international network spans eleven countries, Tarek El Nahas
We have recently started selective corporate banking business in New York and plan to soon roll out corporate b a n k i n g b u s i n e s s i n H o n g Ko n g also. In line with our India business model, we will adopt the “Focused Player” approach in these countries targeting select corporate segments with our state-of-the-art products and services. We also have an offshore banking license in the Kingdom of Bahrain, which is playing an important role in both mobilizing wholesale low cost institutional deposits and in the growth of the Bank’s Bahraini business.
The Bank’s strategic goal is to continue to leverage its existing footprint by supporting the needs of international clients in each of its franchises. The primary focus remains on payments, trade, investment and capital flows, whether inwards or outwards, between the GCC, Egypt and the rest of the world. IBG differentiates itself through an in-depth knowledge of the markets we operate in; adopting a relationship based approach in all of our interactions; delivering a high level of service quality to all of our customers and leveraging off the strong product capabilities developed by our partners in our UAE home base. mea-finance.com
39
BANKING & TECHNOLOGY
Accelerated digital investment gives Middle East banks a decisive advantage post-COVID While adapting to the ‘new normal’ has presented challenges for a number of Middle East industries, the region’s banks have been quick to double down on their technology investments and enhance digital services – both for customers and employees says Yaser Alzubaidi, Vice President – Sales Specialist Organization, Avaya International Yaser Alzubaidi, Vice President – Sales Specialist Organization, Avaya International
A
ccording to research recently conducted by Avaya, 50% of banking customers express a preference towards ‘digital only’ service channels such as online banking, mobile apps, chatbots and social media. In response to these customer preferences, in recent years, banks have been spending billions of dollars on digital transformations initiatives, and globally, some of the largest financial institutions globally have continue to reinvest larger percentages of their yearly revenue into technology. This trend is perhaps even more pronounced in the GCC, where the banking sector has been a clear frontrunner in digital transformation among industry verticals. M o re ove r, re c e n t re st r i c t i o n s have disrupted traditional service c h a n n e l s , f u r t h e r a c c e l e ra t i n g these digitalization efforts. Time-toimplementation cycles have shortened significantly as banks turn to the latest technologies to elevate digital
40
ser vices, omni-channel customer support, and team collaboration. Pioneers Set the Pace In response to the COVID-19 pandemic, Middle East banks have accelerated roll out of fully-digital branches, virtual banking services, self-service chatbots and other digital innovations in a bid to deliver world-class experience and convenience for customers. These initiatives perfectly address key customer satisfaction drivers as outlined by our research, including using new digital technology to be super-efficient (41%), allowing customers to communicate how they want, when they want (36%), and providing a consistent level of service every time (35%). As an example, one of the largest banks and most reputed banks in the United Arab Emirates has further enhanced its customer-centricity through collaboration with Avaya. Working with us, they have gained the ability to draw incredible customer
Banking and Finance news in the MEA market
insights from voice-based engagement between customers and contact center agents. Using voice analytics, every single voice engagement is turned into actional insights that can drive revenue while also increasing relevance for each individual customer. Aside from this, technologies that enable contact center agents to work remotely and solutions that enable seamless, persistent collaboration b e t w e e n i n te r n a l a n d ex te r n a l stakeholders have been foremost among those that regional banks have requested from Avaya this year. In the coming months, the need to rapidly enable remote workforces and ensure customer service capabilities are not disrupted by ongoing developments will continue to drive IT spending in the region’s banking sector. Here too, first movers will gain a competitive edge as 59% of consumer respondents in our research indicate that consultations with financial advisors by video would contribute to making them ‘happier’ customers.
The new era of enterprise software Thomas Schornstein, Head of Middle East for additiv explains how structural change means wealth managers cannot wait lengthy times for implementation and software vendors must change their service models to accommodate the market.
I
remember when I worked in banking, it wasn’t unusual to take up two years to select a piece of enterprise software, with an expectation that it would take another 2 two years before we actually used it! If these kind of protracted procurement and deployment cycles were becoming a thing of the past, the pandemic is likely to kill them off completely.
Post-pandemic wealth management The world of wealth management has been shaken up and the rate of digitalization has been accelerated. But, as we have written before, this means more than just using digital channels. It will entail a reappraisal of servicing, sourcing and operating models, together with an expansion of services focused on education and planning
Fast time to value In the face of this kind of rapid structural change, wealth managers can no longer wait years to implement change. Customers won’t wait that long. Budget holders, scarred from previous overrunning and failed projects, won’t sign it off. And the board won’t stomach the opportunity cost of projects that don’t deliver fast value.
then up to the client to implement, deploy and run the solution. Today, the risk is shared. Subscription revenues spread risk and reward, while cloud deployment makes switching possible. In effect, it takes longer for the software provider to make profits with a higher risk of attrition, which incentivizes the provider to deliver longlasting and continuous value to the customer. Furthermore, some vendors like additiv have stopped charging for implementation, making time to value top of mind for vendor and customer alike.
Assets under intelligence
Thomas Schornstein, Head of Middle East and a member of additiv’s executive board.
Continuous deployment Instead, what is needed are short projects with fast feedback loops. Wealth managers need to replace the long sequential cycles of designing, building and deployment with fast testing and iteration, capturing and validating customer feedback and continuously deploying new features.
Risk sharing Another change we observe is greater risk-sharing between wealth managers and software vendors, which in turn leads to better alignment. In the past, a vendor would sell a software license to a client, giving them a large upfront payday. It was
The last major change we see is in how value is created. As the wealth management industry transitions from safeguarding client assets to helping clients achieve their financial goals, so we see a corresponding change in enterprise IT. As we move from assets under management to assets under intelligence, the features and functions of software give way in importance to data and analytics. The key attribute of wealth management systems today is their ability to it amass and drive insight across multiple datasets – locational, contextual, market, transactional; what we at additiv call a system of intelligence. Systems of intelligence deliver the most relevant and engaging customer interactions at the right time and over the right channel to guide the client to better outcomes
Time to change your approach? In summary, if your organization is still buying systems based on functional specifications and multi-year deployment plans, then it is time to change. The world has moved on. mea-finance.com
41
BANKING & TECHNOLOGY
Building an Intelligent Data Foundation for the Financial Industry Du Yumin, Finance IT Solution Architect, Enterprise Business Group, Huawei explains why financial institutions increasingly need a simple, resilient, and agile unified storage solution to build a modern data foundation.
T
he biggest challenge the banking industry faces today is the growth of Internet finance, as intermediate traders and Internet financial services providers have taken many retail customers from traditional banks, and are also working to attract enterprise customers. In 2020, this process has been accelerated by the global outbreak
42
of COVID-19, which has directly led to the exponential growth of contactless transactions, boosting the development of Internet finance in the Middle East and beyond. To tackle the challenges Internet finance brings and improve their ability to first retain and then gain customers, banks must make the most of their reputations for relative trustworthiness and reliability, and greatly improve the
Banking and Finance news in the MEA market
flexibility and convenience of their service rollouts at the same time. To capitalize on the use of data, banks have a growing need to deploy data storage architecture that best suits their size and their service development expectations. As the data foundation that supports the modernization of the banking industry, storage technology needs to be clean, tough, and agile. But with a plethora of options on the market today, it can be difficult to evaluate the right solutions. Two factors are coming to the forefront of that decision making: service stability, and tailored service modules.
The Starting Point As a starting point, all banks have the same requirements for service stability, which is to have always-online services.
A reliability of 99.999 percent for single devices simply isn’t sufficient to meet their service stability requirements. All-flash storage solutions for stable performance, and 3-Data-Center (3DC) geo-redundancy for multi-level Disaster Recovery (DR) protection, have become the basic configurations for missioncritical services. However, when selecting a specific solution, a bank should design the solution based on its own unique situation and environment. To give an example, one bank used a top vendor’s products to implement 3DC georedundancy ring networking. The two primary sites worked in dual-active mode and replicated the data to the third site to form a ring network. However, the country’s long-haul network was unstable, leading to numerous bit errors — and even fiber cuts at times. In networking modes such as this, the coupling between sites is too strong. Frequent switchovers caused by network
data migration, upgrades, and device maintenance. Multiple factors, including human factors and the external environment, need to be considered. More than 20 percent of faults in a Data Center (DC) are caused by human error. Conducting repeated checks and drills before change operations, along with the formulation of recovery plans in advance, is essential in mitigating this type of fault.
The Next Step Once addressing the issue of service stability, financial institutions must then look at the common service modules of most relevance for them. Banks, for example, tend to focus on competition requirements. Many banks choose Software-Defined Storage (SDS) because it’s easy to obtain, expand, and manage. Meanwhile, Hyper-Converged I n f ra s t r u c t u re ( H C I ) i n te g ra te s computing, network, and storage resources, simplifying management and capacity expansion.
MORE THAN 20 PERCENT OF FAULTS IN A DATA CENTER (DC) ARE CAUSED BY HUMAN ERROR. instability mean that a large amount of data that is to be replicated accumulates in the memory of the main site. When the memory is exhausted, faults occur. In regions where the long-haul network is unstable, it’s imperative to minimize the impact of the network’s performance on the solution and therefore reduce coupling between sites. In this example, the vendor should have deployed a tightly coupled activeactive solution at the primary site, and it should have formed loosely coupled asynchronous replication relationships between the main site and other sites. Moreover, services must also remain online during a configuration change,
Customers have multiple options here, including open-source SDS software and general-purpose servers; commercial SDS software provided by vendors and general-purpose servers; commercial distributed storage products; commercial HCI software and generalpurpose servers; or commercial HCI integrated software/hardware products. As no product is perfect in every aspect, enterprises must choose the solutions that best satisfy their needs. W i t h t h e i r ow n d a ta sto ra g e Operations and Maintenance (O&M) teams and plenty of development and testing personnel, large banks typically have strong R&D capabilities and tend
Du Yumin, Finance IT Solution Architect, Enterprise Business Group, Huawei
to choose open-source software and general-purpose servers. This is because the developers working at banks aren’t professional storage experts and they have limited methods for optimizing and monitoring the underlying layers, limiting their ability to deliver optimal performance for ever y scenario. Instead, banks rely on the maturity of open-source software to monitor and handle faults.
Critical Choices I n t h i s c o n tex t , H C I s i m p l i f i e s management and capacity expansion, and tightly couples various resources. During capacity expansion, computing or storage resources often become redundant. Determining the ratio of computing resources to storage resources in advance is therefore key to deploying HCI. Using HCI products integrated with applications is also feasible, and solution providers can more accurately calculate the optimal ratio of various resources. In the end, the choices that financial institutions make in deploying their data storage architecture—particularly around service stability and service modules—will have an increasingly profound impact on their mission-critical services in today’s digital society. mea-finance.com
43
REAL ESTATE INVESTMENTS
Shari’ah Compliant Real Estate Investment
RIGHT TO LEFT: Tim Haywood – General Manager, Regional Vice President, the Walton Group of Companies, Maya Marissa Malek – CEO, Amanie Advisors, Wan Hafizi Wan Halim – Consultant, Amanie Advisors
Shari’ah compliant real-estate investments are creating more options for portfolio diversification under the umbrella of Islamic Finance. Tim Haywood, General Manager and Regional Vice President at the Walton Group of Companies, a global real estate asset management company and Amanie Advisors, an Islamic Banking and Shari’ah Finance advisory consultancy, explain how and why this opportunity is growing in the region.
44
Banking and Finance news in the MEA market
W
hat has been the driver behind Walton’s Shari’ahcompliant offering? And how does your product stand out in the industry? We have offered a Shari’ah compliant product for around 3 years, so we were already aware of the importance of the endorsement for the Islamic Finance markets where our product is offered. Following the restructuring of that product towards the end of last year, with a focus on cash flow generation for investors, it was important to ensure that the new model was also compliant. Over the same period of time, we established our first Middle East office, so we felt it was important to work with a globally recognized and respected Shari’ah Supervisory Company such as Amanie Advisors. Walton is a market leading real estate asset management company, offering fully packaged land investment solutions, in partnership with publicly traded U.S. homebuilders, to deliver superior returns to investors with annual cash flow distributions.
Could you tell me more about your clients that are using your Islamic offering, and what kind of feedback have you received since the endorsement from Amanie Advisors? Our clients are generally referred to us through Wealth Managers and distribution partners, so the Shari’ah endorsement has opened opportunities for those business partners to expand their potential client pool and offer an alternative real estate product to their clients. As the demand for Islamic finance products increases across our regions in the Middle East and South East Asia, we hope to be able to fill a gap in the alternative real estate investment area, thus providing a greater choice to investors who see the U.S. housing market as a significant investment opportunity.
The feedback since the endorsement has been very positive, and although the news has only just been released publicly, we are already receiving enquiries from different regions. Our business partners have seen the endorsement as a sign of our commitment to our expansion across all markets. What key factors did the Amanie Shari’ah Supervisory Board take into consideration when endorsing this as a Shari’ah compliant investment product? Ms. Maya Malek, CEO of Amanie Advisors points out that their Supervisory Board takes into consideration various factors when reviewing a particular product for Shari’ah approval. These include but are not limited to, fulfillment of all Shari’ah requirements and principles within the context of the product, adherence to international Shari’ah standards, alignment with market practices within the Islamic finance industry and sound legal documents which reflect the Shari’ah structure and requirements
Tim Haywood – General Manager, Regional Vice President, Walton International Group
such as Malaysia and Indonesia, it was an obvious move to ensure that Walton’s offerings were available to the Muslim community. We opened our Dubai office in 2019 to support our business partners and clients in the GCC region and we felt that having the endorsement would further strengthen the appeal of our product range beyond the expatriate client base, and open
ISLAMIC FINANCE IS A RAPIDLY GROWING SECTOR ALREADY WORTH APPROXIMATELY $2.4 TRILLION GLOBALLY, ACCORDING TO S&P GLOBAL RATINGS. accurately. It is important for the product to be both Shari’ah compliant and commercially viable.
Why is this endorsement so important to Walton and why do clients in the Middle East choose to work with your organization? Islamic Finance is a rapidly growing sector already worth approximately $2.4 Trillion globally, according to S&P Global Ratings. With a presence in South East Asia (Singapore) for over 25 years and clients in markets
a wider distribution network for our existing and new products. Clients choose to work with Walton because of our unique way to research, acquire, structure, and exit near term development land investment projects, providing genuine asset diversification for their investment portfolio. Clients also recognize the strength of our strategic relationships with the largest national homebuilders in the U.S., providing investors with peace of mind as they seek to secure stable cash flow over the medium term. mea-finance.com
45
REAL ESTATE INVESTMENTS
How is this investment product expected to benefit investors and what are its advantages over other real estate / regional investments? Our Exit Focused Pre-Development Land Investment (EFPDLI) product has been designed with cash flow generation in mind. Walton, in conjunction with third party real estate analysts, researches and acquires near term development land and immediately secures publicly traded homebuilder interest in the form of a signed Letter of Intent. Following the homebuilder due diligence period and the subsequent signing of an Option Agreement, investors benefit from annual cash flow distributions as the development lots are delivered to the homebuilder on an agreed, scheduled phased takedown. The U.S. residential h o u s in g m ar ket i s ex p er i enci ng significant growth, following a decade of recovery after the 2008/9 crisis, and Walton provides a unique opportunity for investors to participate and benefit from
46
the growing demand for new, affordable homes, without having to become homeowners themselves. Our product competes with the other Shari’ah compliant investments, such as the Islamic Sukuk market for example, which recently issued a 10-year Sukuk offering a 2.7% profit rate. We believe that our product can offer a significantly higher rate of return for investors that can complement their portfolio and provide diversification. With many GCC countries having currency pegs to the USD, investing in a USD asset removes the currency risk exposure they may face when investing in other markets or assets.
What are the biggest challenges facing your business this year? And what is your outlook for the last quarter of the year? Undoubtedly the Covid-19 pandemic which has challenged most businesses but has also provided opportunities for others. Our focus is on the U.S. homebuilding industry which has
Banking and Finance news in the MEA market
been a definite bright spot within the U.S. economy. Homebuilding activity is extremely strong and in a historically low interest rate environment, homebuyers are seeking affordable housing in growth markets, which offer a larger, new home with work from home space incorporated. As a result, we believe we will have a strong final quarter and a significant pipeline of exit activity.
In terms of growing business in the region, what do you have planned next? Just recently we have launched two new land investment products which are in the process of going through Shari’ah compliance review with Amanie Advisors. We hope that these will also receive their endorsement in the near future. We are committed to the Middle East and believe that with our three land investment products, we will cater to an ever-wider audience including HNWI, Wealth Managers, Family Offices and Institutional investors.
Advertorial
INVESTMENT BANKING
Striding purposefully ahead despite the headwinds
For the first six months of 2020, GFH Financial Group made steady progress, despite the current challenges and the impact of COVID-19 on their business and global markets. While net profit for the first six months of the year was impacted by the current conditions, the Group’s achievements and underlying strong financial health and operational performance was reflected in ongoing investor and market confidence. For the period, the Group successfully placed more than US$120 million in investments with clients, issued Sukuk to regional and international investors and had its ratings reaffirmed by Fitch. Building on their strong momentum and liquidity, the remainder of 2020 will see the Group focus on continued value creation through further growth and diversification of their operations and investment portfolios.
48
Banking and Finance news in the MEA market
P
lease give some insight into your latest quarterly results announcement. What factors do you think have been key in shaping the results? Our result were shaped by continued strong revenue generation from our diversified business lines and model. This included positive contributions from our core investment banking activities and investments that continued to deliver solid yields and returns. On the treasury side, a new and growing area of our business, we were also successful in identifying and acquiring Sukuk and other treasury products at reduced prices in light of current market conditions and the sharp drops that have resulted in prices of certain financial instruments. We also took important steps to clean up and streamline our balance sheet on the commercial banking side. We moved to restructure the business via a Tier 1 Sukuk issuance and realigned our activities in order to deliver stronger results and achieve more positive contributions to the Group from its business line in the future. In general and in light of current circumstances, we also remained very cost conscious, evaluating new ways to implement controls on spending and to achieve cost rationalisation across the Group and our subsidiaries where possible.
Why have you seen a growth in liquidity during the current scenario and what does this say to you about confidence levels of depositors and investors? Since beginning of COVID crises, we focused on strengthening liquidity in anticipation of market cycles. We are extremely pleased with the growth in liquidity. It is a real reflection of the confidence the market continues to have in GFH and our strategy as well as our progress and prospects for the future as we continue to work hard to diversify and expand our business in strategic areas and geographies. Since the start of the
Hisham Alrayes, CEO of GFH Financial Group
year we have successfully completed the issuance of US$500 million Sukuk with the participation of international and regional investors.
Each of your business lines have been profitable despite the current circumstances. What characteristics of your business model has made this possible? Diversification has been a key pillar in GFH’s strategy as we have transformed ourselves into a full-fledged financial group with multiple, profitable business lines and sources of income. Over the past years, we have focused on building our position in a number of key areas including investment banking, real estate, treasury, commercial banking and wealth management. We are extremely pleased that they are all operating soundly, achieving progress and contributing to the strong revenue growth we continue to witness. During different market cycles, performance can be up or down, but our model will be stronger due to diversification. We will continue to target to add more lines in future.
WE ARE PLEASED TO CONTINUE TO REPORT STRONG REVENUE GENERATION ESPECIALLY FROM OUR CORE INVESTMENT BANKING ACTIVITIES AND FROM THE STRATEGIC AND RESILIENT PORTFOLIO OF INVESTMENTS WE HAVE BUILT. DESPITE THE DAUNTING CHALLENGES PRESENTED BY COVID-19, WE HAVE SEEN OUR INVESTMENTS CONTINUE TO PERFORM WELL. WITH THE ISSUANCE OF SUKUKS IN THE FIRST HALF OF 2020, OUR LIQUIDITY POSITION HAS BEEN EVEN FURTHER ENHANCED AND OUR ABILITY TO CONTINUE TO EFFECTIVELY IMPLEMENT OF OUR STRATEGY REINFORCED. - Hisham Alrayes CEO of GFH Financial Group
You have grown your assets under management, doing this largely inorganically. What does this mea-finance.com
49
INVESTMENT BANKING
mean in terms of your ambition as a business and your appetite for growth? Another important part of our strategy for expansion has been the growth of our assets under management through strategic acquisitions that complement our business and enable us to grow in a more quick and efficient way. Today we sit on USD 10bn in assets and assets under management as a result of the past five years growth on a consolidation basis. We have pursued both organic and inorganic growth and taken advantage of opportunities that would enable us to reach our objectives. We are actively evaluating opportunities and see a great deal of potential and scope for GFH to use our expertise and funds. One recent example was the acquisition of a further 21.8% stake in Global Banking Corporation. This transaction reflects our continued focus and ability to capture strategic opportunities for growth and revenue generation and nicely complements some of our other associated investments while increasing the size of our assets under management. The acquisition will also give us access to key portfolios and contribute to GFH’s profitability during the year. We will keep looking for similar opportunities as we go forward and keep expanding our AUMs and achieve the strategic growth we are seeking according to our plans.
challenges, we have already placed US$120 million of investments with our clients and we will continue to undertake strategic new deals that we believe will be well received.
What is your assessment of the outlook for investment in the regions’ markets?
What do think will be the ongoing impact of the Corona virus pandemic on the region?
There continue to be challenges for investors and the markets globally, including our region. However, despite current circumstances, we continue to see strong demand from our clients and investors for assets and opportunities that can provide solid income generation and cash flows. We have certainly demonstrated our ability to find such assets, acquire them, place them with our investors and investment managers, then successfully exit them. In the first half of the year, and despite the current
We believe that the pandemic has transformed many aspects of our personal and professional lives and, in particular, an increased use of technology in how we run our businesses, manage our employees and communicate and serve our clients. While making significant change was challenging in part at the outset, we believe that today we have become more nimble and run more efficiency and that technology is helping to further transform our businesses and lives in positive ways.
50
Banking and Finance news in the MEA market
Lo o k i n g a t t h e i m p a ct of t h e pandemic on the economies of the region, certainly the changes we have seen and their impact has been unprecedented. This applies across the board, but very significantly to certain sectors such as hospitality and tourism which have been deeply affected. At the same time, governments are facing liquidity challenges as state revenues fall and this has resulted many having issued government debt to bridge the gap. We believe these factors, among others, while challenging also create opportunities for skilled investors, like GFH, and we are looking to capitalise on them as we go forward in ways that will not only benefit the Group and our shareholders and investors but more generally the economies of the region where we are active.
ADVISORY VIEW
How COVID-19 will bring transformational developments to the Islamic finance markets? Dr. Mohamed Damak, Senior Director and Global Head of Islamic Finance for Standard & Poors, a global ratings agency, details the effects of the events of this year on the worlds’ Islamic Finance markets.
T
he COVID-19 pandemic and measures to contain the virus have hurt global and regional economic activities. Adding the drop in oil prices, the core Islamic finance economies such as Gulf Cooperation Council (GCC), Malaysia, Turkey and Indonesia are witnessing a significant slowdown. Therefore, we expect the global Islamic finance industry to observe a tepid growth in 2020-2021, following a strong performance in 2019, and underpinned by a more dynamic sukuk market.
Slow recovery a new normal The $2.4 trillion Sharia-compliant finance industry is expected to record “low to midsingle-digit growth” this year and in 2021. The industry registered strong growth of 11.4 per cent last year on the back of higher than expected sukuk issuance. The volume of Islamic bond issuance is likely to drop this year from $162bn in 2019 when Turkey, GCC issuers, Malaysia and Indonesia supported the market. The strong global liquidity and investors’ increasing risk appetite are opening a window of opportunity, though. We continue to see the takaful sector expanding at mid-single-to-high-digit rates, while the funds industry might see some negative effects from market volatility and low investor appetite in 2020.
Overall, we believe low-to-mid-single-digit growth for the overall industry is a fair assumption over the next two years. Amid tougher conditions, we do not see core Islamic finance countries using sukuk as a primary source of funding despite their higher financing needs.
Inclusive standardisation and greater use of social instruments However, there is an opportunity in the current environment to accelerate and unlock the long-term potential of the industry. In our view, COVID-19 offers a window for more integrated and multifaceted growth with higher standardization, stronger focus on the industry’s social role, and greater use of fintech. In the context of the pandemic, the industry players have been discussing the potential use of social instruments including Qard Hassan, Social Sukuk, Waqf, and Zakat to help the companies and individuals that have been economically affected. With the right coordination between different Islamic finance stakeholders, we believe that the industry could create new avenues of sustainable growth that serve the markets. Inclusive standardization of Sharia interpretation and legal documentation and awareness of ESG factors are further examples of how the market
Dr. Mohamed Damak, Senior Director and Global Head of Islamic Finance
can be stimulated. In our view, inclusive standardization is achievable, and will also boost the industry and the volume of issuance. Ultimately, it will restore the attractiveness of the instrument to issuers through a smoother, faster issuance process and increased clarity on the underlying risks for investors.
Adoption of fintech enhances resilience Lockdown measures have shown how the capacity of a company or a bank to shift its business online is critical for continuity. For Islamic banks and sukuk, higher digitalization and fintech collaboration could help strengthen their resilience in a more volatile environment and open new avenues for growth. Fintech could help by facilitating easier and faster transactions, improving the traceability and security of transactions using blockchain, enhancing the accessibility of Islamic financial services, and improving governance. This, together with smart-contract protocols, could create faster or even out-of-court sukuk dispute resolution. mea-finance.com
51
ADVISORY VIEW
The rise of foundations in the UAE Foundations have become a popular option for regional wealth structuring and succession planning in the UAE. Here, Nina Auchoybur, Managing Director of Ocorian, a global leader in fund administration, capital markets, corporate, private client and fiduciary services, breaks down the structure of a foundation and details the benefits it can provide to both families and businesses.
W
hat is a foundation?
A fo u n d a t i o n i s a n independent legal entity and is derived from civil law jurisdictions, as opposed to a trust which is a common law concept. It also has no members or shareholders, but is self-owned. The foundation’s founder bestows assets to the foundation and owing to its separate legal status, will hold those in its own name and separately from the founder’s personal wealth. Those assets are then managed by the foundation council (equivalent to a board of directors for a company) in accordance with the foundation’s charter and by-laws (reflecting the
52
intentions of the founder) in support of a cause or a purpose, or for the benefit of beneficiaries.
What differentiates a foundation from a trust? This a common question that we’re asked as a trust is often a more familiar concept. A trust is a legal obligation or relationship between the settlor (the person who creates the trust), the trustee (the person in charge of the trust) and the beneficiary (the person who receives benefits from the trust). Legal ownership of the trust sits with the trustees and beneficial ownership with the beneficiaries.
Banking and Finance news in the MEA market
What are the main reasons for establishing a foundation in the uae and what advantages do the offer families and businesses? At the moment we are seeing a variety of foundation structures being implemented to hold trading companies, real estate and liquid investments. It is an attractive vehicle for these purposes because it provides a number of benefits including: A sset protection - Because the foundation’s assets do not belong to the founder, they are not readily accessible to creditors, governments or other family members, provided certain conditions are met. P rivacy - The beneficiaries of a foundation are private and so the founder’s family wealth can be managed more discreetly. This provides its own benefits including: • reduction of the risk of claims/ judicial actions from third parties against the founder and their family to extort a monetary benefit/ settlement; • better bargaining power when negotiating business deals and/or acquiring assets; • reduced risk of being targeted and befriended by unscrupulous individuals in order to access their wealth; and • less urgency for potentially uncomfortable discussions around
pre-nuptial agreements for the founder or heirs. Flexibility - With the separation of legal and beneficial ownership, a foundation enables families to facilitate their inter-generational legacy planning and wealth protection objectives, particularly where the family is internationally mobile with assets in multiple jurisdictions. Effective succession planning Foundations provide assurance that the assets (or their benefits) will be distributed as per the wishes of the founder under the terms of the foundation, irrespective of succession laws. Even where enforceable wills are possible, they only work on death and do not protect assets against bankruptcy, incapacitation, imprisonment and divorce. A foundation can help with all of these issues as well as negating lengthy probate issues on death, giving much greater continuity. I m p roves fa m i l y g ove r n a n c e - Foundations provide an effective corporate governance framework
Do UAE inheritance laws affect the functionality of a foundation? This is an area where we work with specialist local lawyers to ensure that the issues in relation to UAE inheritance laws - mainly referring to certain key provisions of the UAE Personal Status Law No. 28 of 2005 - are identified and the corresponding risks are mitigated to the extent allowed under applicable UAE laws. The approach taken will often depend on the religion of the founder and of his or her family, as the laws apply differently to Muslims and non-Muslims. Although the assets still belong to the foundation after the founder’s death (unless otherwise stated in the foundation’s by-laws), no structure or legal mechanism can prevent a third party from bringing a challenge. Often the party most likely to be challenging would be disgruntled heirs who would be set to receive more under the UAE Personal Status Law than with the foundation. Depending on the individual family dynamics and situation, in accordance with the intentions of the founder and
AT THE MOMENT WE ARE SEEING A VARIETY OF FOUNDATION STRUCTURES BEING IMPLEMENTED TO HOLD TRADING COMPANIES, REAL-ESTATE AND LIQUID INVESTMENTS. (similar to a company or single-family office), which allows for wealth to be managed in a professional manner to benefit the founder and his or her family. E nables philanthropic giving - A foundation can evolve alongside the founder’s vision and ethical wishes and can be used to support issues close to the founder’s heart. E stablishes a legacy - Through a foundation, the founder’s goals continue in perpetuity.
upon advice from specialist local lawyers, and potentially a Shariah scholar, and where there are significant concerns of a challenge, we would normally recommend the following: All transfer of assets into the foundation be structured in a certain manner e.g. as a gift or acquisition. The timing and value of such transfers are also important. If advisable, make the foundation Sharia compliant, both in terms of the investments/assets held by the
Nina Auchoybur, Managing Director of Ocorian
foundation and distribution to be made by the foundation. *
What information is accessible by the public? All three UAE foundation regimes (DIFC - Dubai International Financial Centre, ADGM - Abu Dhabi Global Market and RAKICC - Ras Al Khaimah International Corporate Centre) provide for private foundations with very limited information in the public domain. Only generic information such as the foundation’s name, address, date of incorporation and, for the ADGM, the name of the registered agent, is available on the ADGM and DIFC respective online registers. Neither do the DIFC nor the ADGM requires the filing of the foundation’s by-laws (which contain the details of the beneficiaries) and filing of accounts if a registered agent such as Ocorian is appointed and therefore the founder’s family wealth can be managed discreetly. In the case of RAKICC, there is no equivalent online register and the by-laws are filed with its authority, who retain the information privately. *[The author is not a legal or Sharia professional and their views expressed are their own and do not necessarily reflect official laws, not do their constitute advice]
mea-finance.com
53
OPINION PIECE
Some truths about digital transformation Mark Kerry, Vice President, Arqitek explains that an architectural approach and continuous transformation can simultaneously be both about what a business needs and how those needs can be fulfilled digitally so that business and technology are seen as co-existing and inseparable.
I
t remains the case that most financial institutions in the MEA region are struggling with the notion of digital transformation (DX). We mention MEA in particular but the struggle is a global one. According to IDC, Direct DX investment is growing at 17.5% CAGR and expected to approach $7.4 trillion over the years 2020 to 2023. Meanwhile, many observers note the high failure rates - typically stating failure rates in excess of 70%. Failure is attributed to many factors. We might consider the importance of executive commitment or of internal alignment. But there are four factors which we suggest are more fundamental: 1/ D igital is not only about front-end services transformation. Digital is about end-end transformation to deliver seamless services at far lower costs of transaction. 2/ The enterprise must architect to realise this transformation. Only an enterprise which has optimized Business-IT alignment systematically and with a truly agile approach is ready for the digital era. 3/ Transformation can no longer be
54
Mark Kerry, Vice President, Arqitek
considered to be a one-off program of activity or even an annual planning activity. Transformation should be performed on a continuous basis. 4/ Once we recognize that transformation is a continuous process then we recognize that it should itself be automated. Another way of thinking about this is to recognise that the paper-based digital
Banking and Finance news in the MEA market
transformation plan and the multi-year program of initiatives are themselves pre-digital artifacts.
Digital Canvas: The Foundation for the Digital Financial Institution T h e d i g i ta l a p p ro a c h to d i g i ta l transformation is many respects already understood and documented. The issue is that the necessity of bringing these approaches into the transformation effort has not been realised. Transformation Management Offices (TMO) are focusing their effort on delivering the program (‘how’ do we build). However, these offices must also be in control of the architecture (‘what’ are we building). From an architecture perspective the right starting point is the Digital Canvas. The Digital Canvas has its origins in the Business Capability Map. It is a mapping of what a business does to reach its objectives. However, the Digital Canvas mapping is presented through the lens of digital. A high level view of the Digital Canvas is shown in the figure. You will see that the figure identifies all the digital domains that might exist within the financial institution spanning from front-end channels to core business and the back office. However, it also identifies the digital ‘enablers’ which must also be established. The Digital Canvas recognises that for the enterprise to be digital, for example, the management of IT itself must be digital. Consider the fact that for most enterprises right now this is not the case. IT is typically managed through a collection of spreadsheets and manual processes! When developed for a particular business we are able to identify what the business does. We can then layer a
However, certainly at this stage a financial institution cannot simply purchase a DBTP. It has to be designed and realised incrementally. Those who set out now with a clear architecture map beneath them can realise this goal and all of the attendant benefits of agility and low cost of transaction.
Transformation Management Platform: Automating the Digital Transformation Process
view of how the identified capabilities are automated through technology. This representation of Business and IT becomes a vehicle for a new level of collaboration across the enterprise. For the first time we are simultaneously exposing both what the business needs and how those needs can be fulfilled digitally. Business and technology are seen as co-existing and inseparable. However, the approach goes far deeper than that. If we now consider the idea of continuous transformation we recognize that we must turn to the Agile paradigm. We must transform using an Agile approach that evolves with the enterprise. The Scaled Agile Framework® (SAFe®) provides a basis for doing this. When we examine SAFe we see that it recognizes the criticality of the architecture. It refers to the Architecture Runway wherein the idea is that new increments must land cleanly in the architecture. This is an important clue because in MEA we rarely see the TMO embracing Enterprise Architecture. SAFe rightly recognises that we must have a view of ‘what’ we are building although this basic concept is too often overlooked. The idea is simply this. If we do not articulate what we are building then we arrive at an incoherent technology landscape that is complex, costly and
that is certainly not agile. We arrive at multiple technology platforms with overlapping capabilities. We arrive at data silos and no coherent integration. Think of a building that was constructed with no architecture plan or a city that has evolved with no city planning. These are the results of the program of initiatives with no underlying architecture.
Digital Business Platform: The Enterprise Operating System Meanwhile, a key emerging paradigm is that of the Digital Business Technology Platform (DBTP). This concept has been put forwards by Gartner. The concept can be considered as the technological realisation of the Digital Canvas: • A n alignment of technologies into a single business-enabling solution that addresses the key architecture domains of the canvas. • A coherent approach to technology that standardises workflows, integrations, analytics and more to derive the agile framework that is required. I like to think of it as the enterprise operating system. The technology components that manage systematic access to enterprise assets such as systems and data. Major platform providers such as Microsoft, ServiceNow and others are moving in the direction of the DBTP.
The DBTP represents the ‘run-time’ technology foundation of the digital enterprise. However, we recognize that the DBTP must be designed and must itself evolve in line with the needs of the enterprise. We therefore need to consider the ‘plan-time’ technology platform that automates the ongoing transformation. We refer to the plan-time equivalent of the DBTP as the Transformation Management Platform (TMP). The role of the TMP is to enable the continuous alignment of strategic goals and objectives with agile projects and with the underlying architecture. Currently, certain aspects of TMP are already recognised. Corporate Performance Management (CPM) exponents have long recognised the need to systematically link strategy and goals to projects and initiatives. However, as mentioned earlier this approach is myopic because it does not recognize how projects impact the architecture. There are other key elements to consider in realising the TMP. The DTMP is rich with data and this data exists all the way from front end-channels to ERP systems in the back office. The TMP should therefore be capturing relevant data from the DTMP to help inform the strategy and to measure progress towards objectives. Whilst the TMP concept may seem far reaching the building blocks are already in place. The role of the Digital Transformation Office should be to recognise these elements and to bring them together. This is entirely achievable and in our view is the only way of evolving the truly digital enterprise. mea-finance.com
55
OPINION PIECE
LESSONS FROM THE PANDEMIC:
How the digitisation of the SME sector was an essential step for the industry’s growth-journey Colin Dallas, Head of Retail Banking at National Bank of Fujairah (NBF) explains how they are working with SME’s to evolve the strength and agility to thrive in the new business landscapes of the post pandemic world.
T
he digital transformation is rapidly accelerating as a result of the COVID-19 pandemic, advancing in terms of consumer and business digital usage by up to five years in a matter of around eight weeks. The playing field has shifted entirely and embracing technology has become pivotal for businesses to survive in the new climate. By now, many companies must have revaluated their existing business models and adjusted them to the digital landscape.
Evolving through change At NBF, our strategy has been to not only respond to change with agility, but to
56
thrive on it to enhance and strengthen our offering. When we take a closer look at retail banking, for instance, we can see how digital transformation has been sitting at the very centre of its development journey. Over the years, we have been working tirelessly to ensure the user experience reflects enhanced efficiency, better security and resilience, and faster and instant servicing. Th e evolving re quire me nts of customers have been serving as a guide for us to continually improve and enhance our operations to ensure maximum efficiency and the most positive customer experiences. With that, we have recognised that the road to
Banking and Finance news in the MEA market
Colin Dallas, Head of Retail Banking at National Bank of Fujairah (NBF)
transformation is ever evolving and have applied this mindset to all our operations and divisions. Our relationships with our clients have transformed into partnerships, and we have been working with them to ensure that their needs are reflected in all our services and offerings.
Building a community A great example of this is our latest innovation, NBF Connect, a platform that has been co-created alongside our fellow SME clients. We have long recognised the indispensable value that SMEs bring to the country’s economic engine, and with COVID-19 accelerating the transition to the digital world, we wanted to step in and be the first to help digitise this vital sector. As such, we joined forces with SMEs to build a platform that meets their business needs and helps them navigate their growth-journeys. The aim was to alleviate some of the challenges that currently exist by creating a community where SMEs can share their knowledge and expertise, connect, and engage in industry-related conversations, as well as receive the latest market insights and learn about e-commerce and marketplace management. As a result, NBF Connect became a one-stop-shop for small
entrepreneurs and allows them to gain invaluable insight into a wide range of non-banking offerings, all provided by fellow enterprises. Recognising that knowledge and information are powerful resources, our platform ensures that registered users’ have access to the latest SME news and insights about
IT IS NO SURPRISE THAT THE WORLD HAS EXPERIENCED CHANGE ON A SCALE THAT WE HAVE NOT EXPERIENCED IN OUR LIFETIME.
business owners from all walks of life, allowing them to connect and discover avenues of growth. What singles out this platform is the community element and the strong support system that it offers. More so, it brings together like-minded
key business trends and updates. Furthermore, NBF Connect gives access to a calendar so users can stay up-to-date and participate in the latest featured SME events. For entrepreneurs who are nurturing a new company or transforming their
business model to the digital space, NBF Connect features an excellent suite of business services to meet every SME need provided by fellow SMEs such as HR services, legal support, e-commerce, digital tools, a n d m a r ke t p l a c e m a n a g e m e n t . Moreover, new enterprises can easily open a business bank account online within a simple-to-navigate system, and registered clients have access to NBF’s secure online banking service whenever they like and wherever they need it. It is no surprise that the world has experienced change on a scale that we have not experienced in our lifetime. In a world where we have adopted a new way of working, shopping and living, it becomes instrumental to not only remain abreast of these changes but to move along with this wave with agility, strength and resilience. Platforms like NBF Connect facilitate the necessary transformation and serve as a vital information hub, connecting all those who embark on this vital business revolution. mea-finance.com
57
ISLAMIC FINANCE
UK lead on Sustainable & SRI Finance and opportunities for IF HM Treasury is confident that the Islamic finance industry can play an important role in unlocking the investment needed to deliver UN Sustainable Development Goals. The current funding gap is estimated by the UN at $2.5 trillion per year. This will be a massive commitment for any financial system whether the conventional or Islamic finance sectors. By Mushtak Parker
T
he UK Government is taking the lead in pushing the sustainable an d s oci a l l y resp o nsi b l e finance agenda whose ethos is eminently compatible with Islamic principles of financial intermediation. In July, the UK Government through the Economic Secretary to HM Treasury, John Glen, in partnership with the Islamic Finance Council UK (UKIFC) convened the inaugural Islamic Finance & UN Sustainable Development Goals (SDGs) Taskforce through a virtual meeting bringing together 40 global Islamic finance leaders from the UK, Nigeria, Malaysia and the Gulf Cooperation Council (GCC) countries. The meeting explored the role Islamic finance can play in addressing the US$2.5 trillion funding gap for the UN’s17 Sustainable Development Goals agreed in the UN’s 2030 Agenda for Sustainable Development (SDGs) as part of the postCOVID-19 economic recovery.
Bridging the gap “Islamic finance,” explained an HM Treasury spokesperson, “is one of the fastest
58
growing sectors in the global financial industry, with assets expected to reach US$3.8 trillion by 2022. As you have stated, there is currently a funding gap of around US$2.5 trillion per year that needs to be addressed to achieve the SDG’s. Therefore, there is great potential for Islamic Finance to help bridge this gap. We are supporting the UKIFC’s SDG Taskforce because it aims to generate concrete outcomes that will practically enable Islamic finance to contribute towards achieving the SDG’s.” The UK Government is currently the Taskforce’s first Country Partner with the expectation that other traditional Islamic finance jurisdictions, such as Saudi Arabia, UAE, Bahrain, Kuwait, Qatar, Malaysia, Indonesia, Turkey, Nigeria and even South Africa, will join the taskforce in addition to industry bodies such as the Islamic Development Bank (IsDB), the IFSB, AAOIFI and IIFM. “We see the main objective of the Taskforce as generating practical ideas which will enable Islamic financial institutions to act on the natural alignment between Islamic Finance’s sustainability
Banking and Finance news in the MEA market
principles and the UN’s Sustainable Development Goals. Other jurisdictions are invited to join the Taskforce both as host partners and contributors through their respective Governments, regulatory bodies or industry bodies. We hope to see this happen as it will further highlight the global nature of the Taskforce,” maintained the Treasury Spokesperson. HM Treasury is cognizant of the enormous task ahead for the world in bridging the annual US$2.5 trillion SGD funding gap and the role Islamic finance can play in unlocking some of the investment needed to deliver SDGs. This could be done through partnerships also between Islamic finance and conventional institutions in areas of SDGs common to both and co-financing projects and initiatives with country international development funds, sovereign wealth funds and development banks. “We are committed to strengthening the UK’s Islamic banking sector and ensuring the UK remains the leading Western hub for Sharia’a-compliant financial products and institutions.
Islamic Finance can play an important role in unlocking the investment needed to deliver sustainable development goals and we look forward to seeing the practical ideas the Taskforce will generate,” added the spokesperson.
Major challenges The UN’s SDGs are the blueprint to achieving a better and more sustainable future for all, addressing issues such as climate change, education and equality. Achieving the SDGs requires a coordinated global effort with Governments and private sector, including the financial services sector. The UN estimates that the SDG financing gap can be closed by mobilising 1% of the global capital market value. This has to be considered against a background where most of the economies of the 57-member Jeddah-based Islamic Development Bank (IsDB), the multilateral development bank of the Organisation of Islamic Cooperation, are forecast to contract sharply in 2020/21, with very few countries spared. The United Nations Development Program (UNDP) estimates that 100 million people will fall back into poverty in 2020 because of the economic and health impact of Covid-19. The Taskforce will have its work cut out to achieve its stated objectives of creating a platform to encourage and support collaboration and practical action, and in developing a campaign to support Islamic financial institutions and their stakeholders to understand and engage with the SDG agenda. As Omar Shaikh, UKIFC Advisory Board Member, explained in the virtual inaugural meeting of the Taskforce: “Despite a natural alignment our analysis suggests that few Islamic financial institutions are engaged in the SDGs. As we enter the decade of delivery, we have convened some of the leading global figures in Islamic finance to consider the steps to be taken to raise awareness of the Global Goals and inspire practical action amongst Islamic financial institutions.” As such it will be up to governments through policy initiatives, regulators
John Glen, Economic Secretary to HM Treasury
through the required regulator y frameworks; multilaterals such as IsDB and shareholders and investors to push this real socio-economic agenda. Given that almost half of the IsDB member countries are classified as least developed countries (LDCs), the UN’s SDG agenda assumes an even greater importance.
Omar Shaikh, UKIFC Advisory Board Member
this year issued a Call for Innovation under its US$500 million Transform Fund, launched in 2018, whereby the Bank will financially support ideas that help curb the spread of COVID-19, minimise the socio-economic impact of the pandemic and build the resilience of the Bank’s member countries in responding to outbreaks and pandemics long-term.
DESPITE A NATURAL ALIGNMENT OUR ANALYSIS SUGGESTS THAT FEW ISLAMIC FINANCIAL INSTITUTIONS ARE ENGAGED IN THE SDGS But the imperative is for the Islamic finance industry to move from the rhetoric of aspiration to collective action to support the achievement of the Global Goals by 2030.
Taking action One institution that has proactively pursued and shown its commitment to the UN SDGs is the IsDB, whose President Dr Bandar Hajjar, addressed the Taskforce meeting calling for greater cooperation between the public and private sectors and to use the SDGs to inspire financial innovation. The synergy and complementarity between Covid-19 mitigation and progress towards achieving the UN SDGs is implicit. In this respect, the IsDB earlier
“One of the many issues this pandemic has shown us,” explained Dr Hajjar, “is that survival depends heavily on investment in science, technology and innovation. We encourage entrants that have innovations with a focus on advanced technology, innovative health supply chain management, low cost rapid tests and capacity building innovations.” T h e F u n d w e l c o m e d s eve ra l applications specifically linked to tackling COVID-19 in relation to the following six UN Sustainable Development Goals (SDGs): SDG2: Zero Hunger; SDG3: Good Health and Well-Being; SDG4: Quality Education; SDG6: Clean Water and Sanitation; SDG7: Affordable and Clean Energy; and SDG9: Industry Innovation and Infrastructure. mea-finance.com
59
LEGAL PERSPECTIVE
Reasons to be cheerful Though 2020 has confronted companies with serious and unexpected challenges, it has come with opportunities for companies to expand through M&A, buyouts, and the Abraham Accords. Here, Jonathan Noble, Local Partner, AMERELLER, a leading law firm, describes the regional environment for such opportunities, highlighting important considerations and factors to keep in mind when taking action.
T
he UAE and broader MENA re g i o n h a v e l o n g b e e n recipients of foreign direct investment (FDI) via strong international ties with investors and businesses in North America, Europe, and Asia. While the multiple shocks of 2020 may have shaken investor confidence around the world, the MENA region will continue to be a destination for investment and growth. In 2019, the UAE registered the fastest annual FDI growth rate in the MENA region with total inbound investment of roughly USD 3.4 billion1. For 2020, the
60
MENA region is likely to see declines of 30-45% in FDI inflows to the region. As a service provider of choice for European, Japanese, and American multinationals in the Middle East, we have had a front row seat to how the multiple hits of 2020 have impacted business. Even with the gloomy news of geopolitical uncertainty, the COVID-19 p a n d e m i c , a n d o i l p r i c e s h o c ks - our outlook is largely positive. This is supported by positive trends in the M&A arena, and the potentially game changing breakthrough of the Abraham Accords.
Banking and Finance news in the MEA market
Fears of M&A’s Demise are Premature but the Road Ahead May Still be Bumpy Despite the headwinds, some international companies have been active acquirers in the Middle East in 2020. While deal value and volume decreased in the Middle East in H1, this trend may have started to reverse. In most cases, companies identified acquisition targets before the onset of the pandemic and are now consummating deals despite the prevailing uncertainty. We have seen fewer “opportunistic” deals than we initially anticipated as the pandemic
accelerated, but this could change moving into 2021. As is always the case, due diligence will be a key factor for opportunistic buyers. Distressed assets in the Middle East may be in trouble due to macroeconomic conditions but could also be facing sustained business issues not related to the pandemic. These include consistent cash flow and liquidity problems; m a n a g e m e nt t u r n ove r ; d i s p u tes with third party creditors, customers, suppliers, and other stakeholders; and shareholder conflict. Buyers should consider some of the following issues when conducting due diligence on a distressed asset in the Middle East: 1. Financial Position: examine the state of all loans and credit lines; determine whether cash management is proper; discuss the possibility of alternative financing to plug gaps. 2. G overnance: determine whether there are shareholders (including local owners) that may stymie a smooth transfer; review “drag along/tag along” rights; examine side agreements and shareholder documents, especially with nominal local shareholders; analyze any potential breaches of fiduciary duties and conflicts of interest. 3. Material Contracts: review change of control provisions, default provisions, assignment clauses, setoff rights, and other contractual clauses that may be triggered by a share sale or asset transfer. 4. Human Resources: consider whether there are essential employees for business continuity and success; if so, enter into employment agreements with non-compete and non-poach provisions; determine whether employees will be laid off, and, if so, consider when to implement a redundancy program. As is always the case, crisis brings opportunity. It will require skilled operators with discerning eyes, and advisors, to properly evaluate companies in the coming days.
Jonathan Noble, Local Partner, Amereller
Abraham’s Opportunities The Abraham Accords may prove to be the biggest game changer for inbound investment into the UAE in 2020. The United Arab Emirates (UAE) and Israel publicly announced plans to normalize economic and political relations on August 13th and consummated the agreement at the White House on September 15th. While this political breakthrough was years in the making, the legal infrastructure preventing commercial relations has been quicker to tear down. On 29 August 2020, the UAE government published Federal Decree Law No. 4 of 2020 dissolving the Israeli Boycott Law, UAE Federal Law No. 15 of 1972 (the “Decree”). The Israeli Boycott Law prohibited any person or legal entity from entering, either personally or by proxy, into an agreement with Israeli entities or individuals. This included businesses having interests, branches, or agencies in Israel regardless of their nationality. A breach of the Israeli Boycott Law was punishable by imprisonment of up to 10 years and a fine. The opportunities for UAE and Israeli companies after diplomatic normalization are clear: 1. continued growth in the defense and technology sectors; and 2. n ew opportunities in agribusiness, tourism, and healthcare.
Some estimate that bilateral trade between the countries could reach USD 4 billion in the first years and quickly increase. Startup culture is especially strong in Israel and the UAE, and there are significant opportunities for entrepreneurs to share new talent and ideas. In addition, we anticipate that multinational companies may move Israel operations from more far flung locales like Hong Kong and Singapore to Dubai to take advantage of the geographic proximity.
Sustaining Momentum With rising COVID case numbers in the MENA region, the key for businesses in Q4 and Q1 of 2021 will be to sustain any positive momentum that may have come from the summer months. Easy opportunities to right size have now largely been seized, and multinationals that have survived the lean period are looking to make investments for the post-Covid future. We anticipate international companies will continue to invest in both mature markets in the MENA region like the UAE and developing countries like Iraq.
Responding to the Challenge The authorities in the UAE have courageously planned for the future while also supporting businesses through the pandemic period. It is also up to service providers to continue helping clients through the next phase in this pandemic. As in many industries, the role we play as lawyers is evolving in unpredictable ways. Business leaders will still look to us for hard-nosed legal advice, but we are increasingly being asked to act as business facilitators, practical problem solvers, and even IT troubleshooters. These are challenges that we accept with gusto – just don’t ask me how to fix it when a Zoom meeting room closes without notice!
1 Foreign Aid Investment Trends in Asia Amidst Covid-19, Dubai Chamber of Commerce, The Economic Bulletin, September 2020, Volume 10, Issue 195
mea-finance.com
61
LIFESTYLE The Bombardier Global 6000
The comfort of efficiency Private aviation is largely regarded as a luxury but as Empire Aviation describes here, it can be a key component in the efficient, secure and successful conduct of business.
A
private jet offers the ultimate luxury travel experience. Empire Aviation makes private aviation a personalised experience whether you are an aircraft owner or a charter client. A private jet charter flight follows no rigid schedule with missions tailored to suit any travel need or specific itinerary, including multiple destinations. So, your charter flight is unlikely to be cancelled or delayed because it flies to your personal travel schedule.
Ease and efficiency Checking-in is an equally personal and relaxed experience. Security and safety are paramount, and bags still need to be scanned and all travelling passengers
EXECUTIVE DIRECTOR AND PUBLISHER Kenneth Mitchen ken.mitchen@mea-finance.com COMMERCIAL DIRECTOR Nap Estampador nap.estampador@mea-finance.com Tel : +971 50 100 5488 SALES DIRECTOR Andrew Cover andrew.cover@mea-finance.com Tel: +971 50 931 3236
62
must pass through security, but it is fast and without the queues of commercial flights. You really can arrive for your flight 15 minutes before departure. Quick and easy check-in and no risk of lost bags, private jet charter always makes good business sense in terms of flexibility, efficiency and privacy. Businesspeople travelling together on a charter flight can use the time productively to conduct meetings and review business information with the assurance of privacy. It means you can be in the right place, at the right time to complete deals effectively and efficiently. A private jet can often reach remote locations and get you to meetings faster including multiple destinations in a single working day.
EVENTS AND MARKETING MANAGER Cris Balatbat crissyb@mea-finance.com Tel: +971 58 594 4818 SENIOR DESIGNER Florante Magsakay f.magsakay@mea-finance.com Tel: +971 52 570 1811
The interior of the Global 6000
A refined environment Private jet charter is not always about business. The hushed tones and calm efficiency onboard are clear signs that you are in experienced, professional hands and experiencing one of life’s greatest personalised luxuries – perhaps the ultimate luxury. From the quiet, relaxed settings of the private terminal, it is just a short stroll (or transfer by limousine) to your aircraft, which awaits with all the bespoke comforts, thoughtful attention to detail and dedicated personal service of the finest luxury hotel suite. In fact, some of the world’s most desirable and exotic destinations and luxury hotels are now combining stays with private jet charter. Private aviation meets the demands of discerning travelers who expect the highly personalised level of service associated with the ultimate luxury travel experience, whether for business or pleasure, or even a combination of the two.
WEB ASSISTANT Marie Orayan web@mea-finance.com FEATURE CONTRIBUTORS: Adrian Murdoch, Mushtak Parker, Walter Sebele editorial@mea-finance.com
ADMIN AND FINANCE MANAGER Marilyn Nainque marilyn@mea-finance.com Tel: +971 58 5025836
Banking and Finance news in the MEA market
Dubai office: #404, Building B, Al Saaha Offices, Old Town Island Burj Khalifa District PO Box 487177, Dubai, UAE Email: info@mea-finance.com
