United Arab Emirates: Center of Wealth

In 2022, the Middle East will witness an unprecedented influx of wealthy immigrants. The United Arab Emirates (UAE), in particular, attracted more than 5,000 newcomers, the world’s largest net inflow of millionaires. That beats earlier forecasts in the latest Henley Global Citizenship report released in September by Henley & Partners, an international firm that studies private wealth and investment trends around the world.

The country is “a powerful magnet for capital,” said Naushid Mithani, head of private banking for UAE and global South Asian communities at Standard Chartered.

Since gaining independence from Britain in 1971, the UAE has had ambitions to become a global wealth center. To attract the wealthy, the country has developed infrastructure, implemented major tax incentives, transformed local traditions to facilitate the prosperity of Western luxury lifestyles, and provided ample investment and financing opportunities.

Vipul Kapur, Head of Private Banking at Mashreq, the largest private bank in the UAE, commented: “With its tax-efficient environment, global connectivity and ease of doing business, the UAE has emerged as the ultimate destination to store wealth.”

Over the past three years, local leadership has stepped up this strategy. The UAE doubled down on vaccinations to keep Dubai open for tourism and business despite the world shutting down due to the Covid-19 pandemic.

Meanwhile, the authorities have further tweaked regulations to make foreigners feel welcome. Recent major policy changes include the introduction of 100% foreign ownership of non-strategic companies in 2021 (instead of the previous 49%). The 10-year Golden Visa scheme launched in 2019 allows non-Emiratis to make long-term investments. These are “the main drivers of the influx of new millionaires into the country,” Kapoor said.

Hence, newcomers from all over the world, including other Middle Eastern countries as well as Asia, Africa, and Europe, are driving the demand for wealth management services. The recent conflict in Ukraine also explains part of the current capital influx into Dubai and Abu Dhabi. In 2022, when war breaks out between Moscow and Kiev, the UAE remains relatively neutral, becoming a safe haven for wealthy Russians hoping to escape Western sanctions.

adjust quote

Global financial institutions are expanding their private banking and wealth management arms in the Gulf to meet the growing needs of the Middle East’s ultra-wealthy. In February, Swiss group Edmond Rothschild opened a brand new Middle East and North Africa (MENA) center in the Dubai International Financial Centre.

In 2022, HSBC opened an onshore private bank in the UAE, serving clients with investable assets worth US$2 million or more. Farzad Billimoria, UAE Senior Executive and Head of Private Banking at HSBC, said: “By streamlining our onboarding and wealth management processes, we have matched the influx of clients that are coming into this market with the reach of relationship managers.”

“We have attracted a number of new clients over the past few years against the backdrop of accelerated wealth creation in the region and the increased visibility of the BNP Paribas Group in the GCC [Gulf Cooperation Council]Masroor Batin, CEO Wealth Management MENA, BNP Paribas, said: “Our strong purpose as a solid, trustworthy, diversified and client-friendly institution has always been what has made BNP Paribas our client. key driver of the European reference bank,” who also reported rapid growth.

Major international banks have come to the region to offer global investment networks, structured credit facilities and tailored services such as Shariah-compliant products.

“Our approach involves combining deep knowledge of the local market with our extensive network and insight into our global footprint. … We continue to believe that the ‘bridge’ concept is essential to attract capital and the economy in the UAE and across the region Growth ambitions are critical,” said Standard Chartered’s Naushid Mithani, referring to the bank’s venture capital program to identify and help start-ups grow.

Local banks are also stepping up their game, restructuring their wealth and asset management products and finding niches in which to compete.

“With deep knowledge and reach of regional fixed income and equity markets, Emirates Bank has been able to add value in the private banking space,” explained Kapoor. “GCC countries, especially the UAE, have seen an influx of key bond markets and a healthy flow of new equity issuance. With yields higher last year, bank deposits and investment-grade issuance by regional banks, sovereign and quasi-sovereign companies It has been gaining attention from investors. In addition, lenders in the UAE have also been active in offering customized loans in the real estate sector, which has attracted great interest from global investors.”

While the UAE remains the main market for private banking in the Middle East, banks are also looking to build networks in neighboring countries, notably Saudi Arabia or Qatar, the largest and fastest-changing economies in the Arab world.

AML/CFT Compliance

The UAE is placed on a money laundering watch list as it attracts increasing capital from around the world.

“With the influx of rich people and money, the country’s banking sector is at higher risk as incidents of cybercrime and money laundering have increased over the past decade,” Kapoor admitted.

In March 2022, the Financial Action Task Force (FATF), the Paris-based global financial crime watchdog, added the UAE, along with the Cayman Islands, the Democratic Republic and other countries, to its “grey list” of jurisdictions for enhanced regulation Congo, Syria and Yemen . In 2021, a Pandora paper investigation based on 2.9 TB of leaked documents also pointed to the UAE, and especially Dubai, as a hub for illicit financial transactions.

Faced with such accusations, the authorities want to beautify their image. “The UAE will continue its efforts to identify, disrupt and punish criminals and illicit financial networks,” the UAE Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) said in a statement following the FATF classification. In 2022, the UAE Federal Tax Authority and the Dubai Financial Services Authority (the regulator of the DIFC) announced a whistleblower scheme to combat money laundering and tax evasion. The central bank has also introduced new anti-money laundering guidelines, with new regulations to be enacted by the end of 2021.

Compliance is sometimes seen as time-consuming and costly for banks; but in Dubai, some lenders are finding that operating in a challenging environment can foster innovation.

“This has increased the difficulty of onboarding new clients and disrupted business with some clients, but it also presents a huge opportunity for wealthtech solutions focused on streamlining regulation of client due diligence, wealth assessment sourcing and back-office automation Compliance,” Mithani noted.

local wealth

At the same time, locals, traditional clients of prestigious private banks in Geneva, Paris and London, are also eager for wealth management solutions at home. Swiss asset manager Lombard Odier published a study in November on the financial habits of young high-net-worth individuals in the Middle East. According to the survey, 89% of respondents under the age of 40 want to keep assets in the region and plan to continue to do so in the next five years.

The report highlights that “while their values ​​are highly aligned with traditional Middle Eastern values, younger investors may also be more flexible than older investors.” Wealth inheritance is critical for local families. Younger respondents showed a greater willingness to take risks and a strong need to diversify away from hydrocarbons. Both younger and older respondents expressed a desire to participate in the stock market, creating new opportunities for banks.

“They wanted to diversify internationally and turned to us for our global expertise,” Batin said. “Our clients in the private wealth space frequently seek access to the global capabilities we offer through our One Bank approach, making it one of our key drivers of future growth.”

The survey also revealed that new technology and value-based investing are the most popular asset classes among young investors in the Middle East. 64% of respondents believe it is important to follow Islamic investment principles, and 91% say they use Shariah-compliant solutions for at least some of their assets. Sustainability and environmental, social and governance issues have emerged as key investment factors for 81% of respondents, with 88% saying they plan to increase their exposure. Furthermore, “74% believe that new business opportunities will be found in sustainable sectors in the region, such as renewable energy, recycling solutions and sustainable agriculture.” In recent years, most GCC countries have committed to to achieve zero-carbon targets and invest in green energy—mainly solar power systems.

In order to attract more wealthy family businesses to settle in, the UAE will establish a global family business and private wealth center in 2022. The country hopes these moves will boost the financial sector’s contribution to overall GDP and accelerate economic diversification.