As the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) continue developing as global hubs in the financial services industry, the need for a robust code of ethics and compliance frameworks cannot be overstated.
Led by the emirates of Dubai and Abu Dhabi, the United Arab Emirates (UAE) is quickly becoming a player in the global financial markets. Much of this growth has been driven by diversification as the UAE evolves from an economy based primarily on oil.
Saudi Arabia is also experiencing rapid growth across the financial services sector as it reduces economic dependency on the oil industry. With this growth and diversification comes the need to meet global standards of ethics, risk and compliance.
The 2024 Foreign Direct Investment (FDI) Confidence Index, compiled by the consulting firm Kearney, is an annual survey of global business executives that ranks the countries that are likely to attract the most investment in the next three years. Both the UAE and Saudi Arabia had leaps in the 2024 rankings, with the United Arab Emirates rising from 18th to 8th and Saudi Arabia moving from 24th to 14th on the global list.
The Global Financial Centres Index 36 (GFCI 36), published in September of 2024, offers insights into the competitiveness and potential for future investment of 133 financial hubs worldwide. This year’s list showed Dubai and Abu Dhabi, respectively, taking the number 1 and 2 spots in the Middle East and Africa (MENA) region, with Dubai ranked 16 on the overall list. Riyadh came in at 63 on the overall list.
If financial services institutions across the UAE and Saudi Arabia want to attract international investment, company operations must be conducted honestly, ethically and transparently so stakeholders can have confidence that their interests are safeguarded. Firms doing business in the region must also keep track of the myriad different compliance regulators and regulations in the region.
There’s a regulatory imperative behind the need for robust code of conduct compliance and conflicts of interest management, with substantial levels of recent enforcement expected to continue into 2025 and beyond. Early detection of potential fraud and employee misconduct can prevent the significant financial losses and reputational damage that go hand in hand with regulatory action.
A case of note from December 2023 saw the Dubai Financial Services Authority (DFSA), the independent regulator of financial services conducted in the Dubai International Financial Centre (DIFC), fine a firm over USD 1.36 million for inadequate compliance resources. Specifically, the DFSA found that it did not sufficiently plan to ensure it could comply with ongoing regulatory obligations after an acquisition. The DFSA also found that senior management was aware of the lack of compliance resources and failed to deal with the situation.
In 2024, the DFSA issued eight enforcement actions. These actions targeted individuals and entities that undertook unauthorised financial services activities, misled investors and falsified communications, failed to properly protect client interests, failed to comply with anti-money laundering obligations, and misled or obstructed DFSA investigations.
These actions resulted in fines exceeding USD 2.5 million, including USD 1.3 million imposed on individuals and USD 1.2 million on firms. Three individuals were restricted and prohibited from operating within the DIFC. Individual accountability and liability will remain a crucial concern for firms across the Middle East and around the globe. Read the white paper Evidencing Compliance - A Key to Managing Senior Individual Accountability to learn more.
“These actions underscore the DFSA’s steadfast commitment to upholding the highest regulatory standards in the DIFC. The true value of enforcement is its ability to deter wrongdoing and foster compliance. By taking decisive action against misconduct, we send a clear message that non-compliance will not be tolerated. These measures are critical to protecting investors, customers, and the public, while safeguarding the integrity of financial services within the DIFC.”
—Patrick Meaney, Managing Director, DFSA Head of Enforcement at the DFSA
In 2024, the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) imposed nine regulatory actions and sanctions to address contraventions of administered Regulations and Rules. Violations included failure to meet Common Reporting Standard Regulations, offering securities without sufficient disclosure so a customer could make an informed decision and anti-money laundering violations.
In September of 2024, the regulator fined a firm for failure to meet required basic Thresholds, including breach of capital adequacy requirements, failure to meet required principles of Authorised Persons and failure to maintain adequate compliance arrangements. Compliance failures cited include failing to have clear and comprehensive policies and procedures with all applicable legal requirements plus a framework to implement the policies and procedures and monitor that they are operating effectively and as intended.
Read about Best Practices in Policy & Procedure Management for Financial Services.
In light of these failures, the FSRA revoked the firm’s Financial Services Permission (FSP) to operate in Abu Dhabi.
Regulators across the region have outlined expectations for code of conduct compliance for firms in the area.
The UAE Banks Federation provides a Code of Conduct providing guiding principles for firms to follow to raise professional standards and promote trust in the country’s banking industry. The document outlines that “a bank must conduct its business with integrity, high ethical standards, due skill, care and diligence.” It covers core standards of employee and firm behaviour, including management and control, market conduct, conduct towards customers and relations with regulators in the region. The Code of Conduct notes, "Every member of the UAE Banking Federation will be expected to adhere to the Code at all times.”
In Dubai, the Regulations of Brokerage, Trading & Professional Code of Conduct from the Dubai Financial Market’s Board of Directors notes that firms must put processes in place to make sure that authorized persons are aware of their duties and responsibilities, set internal systems to supervise them, and take measures to ensure compliance during the selection and hiring process. The document also outlines registration requirements, trading rules, and requirements and definitions regarding code of conduct requirements.
In Saudi Arabia, the Saudi Arabian Monetary Authority’s Code of Conduct and Work Ethics in Financial Institutions outlines expectations for ethics and employee conduct compliance standards for financial institutions in Saudi Arabia. The Code emphasizes integrity, transparency, and efficiency and lays out expectations for compliance with regulations governing financial transactions, anti-money laundering measures, and the overall conduct of financial institutions and their employees to ensure a stable and trustworthy financial environment.
“Promoting ethical principles will help achieve the vision and mission of the Financial Institution, protecting its reputation, ensuring staff compliance with the principles of prudent behavior, achieving the concept of good governance, enhancing staff performance and professional behavior, dealing with good and poor performance of employees, and improving the image of the Financial Institution in general.”
—Saudi Arabian Monetary Authority’s Code of Conduct and Work Ethics in Financial Institutions
A framework to support ethical conduct, transparency, and regulatory compliance is essential for sustainable growth and stability in the region's financial sector. Compliance technology provides that framework and is necessary for sustainable growth and stability in the financial sector in the MENA region, enabling firms to:
Not having sufficient compliance technology will put firms and the sector at large at a competitive disadvantage.
The financial services sector in the Middle East is poised for continued growth, driven by economic diversification, digital transformation, and a thriving IPO market. However, this growth comes with significant risk and compliance challenges. To stay compliant, financial institutions must adopt proactive strategies to navigate emerging regulatory complexities, including implementing technology.
With an office in Dubai, MCO can help firms across the MENA region effectively manage employee conduct compliance and maintain the highest standards of employee compliance and code of conduct compliance.
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