UAE Central Bank warns of legal action against Standard Chartered

24 August 2014

New York anti-money laundering settlement to affect thousands of UAE businesses

The Central Bank of the UAE has warned that Standard Chartered Bank could be liable to legal action from UAE companies that are facing the closure of their accounts following a settlement struck with the New York-based financial regulator.

In a statement, the central bank said the affected companies may seek prosecution “due to the material harm” the closing of the accounts will cause.

“The consumer protection unit of the Central Bank of the UAE will be ready to receive complaints from victims,” it added, saying it has created a team to review the records of affected firms.

Due to UK bank Standard Chartered’s failings in its anti-money laundering transaction surveillance system at its New York branch, the bank has been fined $300m by the New York State Department of Financial Services (DFS) and subject to a number of restrictions.  

Under the terms of the settlement agreed on 19 August, the DFS has also instructed the bank to exit high-risk client relationships with certain small and medium-sized enterprise (SME) lines within the UAE.

The ruling also affects the bank’s Hong Kong business, calling for the suspension of dollar-clearing operations for high-risk retail business clients of the bank’s Hong Kong.

The DFS says the restrictions are a result of the bank failing to detect a large number of potentially high-risk transactions that had originated from both UAE and Hong Kong operations.

Standard Chartered has issued a statement saying that the bank is now seeking to exit its SME business in the UAE, saying it is part of “broader efforts to sharpen its strategic focus”.

It adds that the increased cost of regulation undermines the economic viability of the business.

Standard Chartered is working to exit this business line within the 90-day time frame set by the DFS.

In response to the ruling, the UAE Central Bank has said that the number of accounts that could be affected by the move lies between 1,400 and 8,000.

In response to the Central Bank’s comments, Standard Chartered says: “We have noted the announcement made by the UAE Central Bank. We always work with our regulators to achieve the right outcomes.”

Income for the UAE generates more than half of Standard Chartered’s total income for the whole of the Middle East, North Africa and Pakistan (Menap).

However, UAE income fell to $596m in the first half of 2014, marking a decline of $35m, or 6 per cent, compared with the same period last year.

Client income was down 5 per cent as was income from corporate finance and transaction banking. Income for the entire Menap region also fell, declining to $951m or a 2 per cent fall compared with the same period last year.

The bank blamed the decline was on “a challenging business environment, margin compression and heightened competition”.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.