Last month, our CEO Shane Riedel moderated a panel discussion at the 2nd MENA RegTech Virtual Executive Boardroom Conference. During the session, the panel explored the thorny topic of trust and transparency in Financial Crime risk management.

The panel included the following expert speakers:

  • Manuel Iglesias, Chief Risk and Compliance Officer, Buna Payment Platform
  • Marianne Scicluna, Executive Director of the Banking & Insurance Supervision Division and Financial Crime Prevention Unit, Abu Dhabi Global Market
  • Mohamed Afifi, Chief Compliance Officer, Banque Misr


Setting the scene, Shane began by stressing the pivotal importance of trust and transparency between financial institutions for the optimal functioning of markets. The benefits, he explained, are enormous and range from faster processing and lower costs to greater operational stability. 

These are necessary prerequisites for financial institutions to operate in international markets and serve their retail and corporate customers. Increasingly, however, they cannot be taken for granted. Indeed, as we have seen from the intense derisking over the past decade, a lack of trust can lead to harmful delays and disruptions, with catastrophic potential consequences. Ultimately, these could even include the partial, or even complete disconnection of international markets.

A recent survey on financial crime in the Middle East and North Africa (MENA) region conducted by Refinitv found that only 10% of respondents actively invested in data quality, while 19% claimed to  review their risk profiles neither regularly nor frequently. When viewed in the light of the World Bank’s tentative growth forecast for the MENA region in the wake of the Coronavirus pandemic - 2.8% by the end of 2021 - it is clear that more work needs to be done to respond to this growing risk challenge.

Finding ways to improve trust in the relationships between financial institutions in a cross border context is therefore essential.

Approaches to building greater trust and transparency 

Improving data quality 

Mohamed explained that the biggest challenge facing the MENA region was its classification as ‘high risk’  from a financial crime perspective. This makes it even more important for banks operating in the region to build trust and transparency with international correspondent banks and clearers, largely by improving the quality and accuracy of the data they hold about their customers.

Secondly, due to a lack of investment in technology (and sometimes even manual resources), some respondent banks were even struggling to respond to “requests for information” from their correspondents in a timely manner. Given the high levels of regulatory scrutiny in jurisdictions such as the US and the UK, this had the potential to cause significant friction in correspondent / respondent relationships.

A concerted focus on improving data quality and processes would therefore go a long way towards enhancing trust with international clearers.

Mutual recognition and increased regulatory collaboration

Underlining the importance of mutual recognition in regulatory frameworks, Marianne added that the MENA region would benefit from increased collaboration between regulatory authorities, both regionally and globally. She clarified that, while the global adoption of ‘identical’ approaches was unrealistic, movement towards a greater mutual understanding of different regulatory frameworks would be a helpful next step.

Marianne also highlighted the value of ongoing conversations around differing risk appetites in terms of generating trust, pointing out that differences across individual entities and jurisdictions can have unique impacts on the regulatory approaches adopted at a national level. Financial Institutions operating on a cross border basis have different compliance obligations and must reassure their home regulators about their operations in different regions.

Bottom line, if regulators are comfortable, the overall process is easier for everyone.

Manuel agreed that the existing model of cross border payments presented a number of problems, specifically in terms of cost and the lack of transparency. He noted that the issue was currently on the agendas of both the G20 and the Financial Stability Board (FSB) and that a lack of trust between both financial institutions and the jurisdictions themselves was a key difficulty.

Regulatory support and common frameworks 

Manuel then touched on the work being done by the Buna payment platform - a cross border payment system designed to promote regional integration across Arab economies - in working to address some of the trust issues that exist between financial institutions across the MENA region.

Clearly, regulatory support from central banks in the area would be key to building trust and transparency (as currently happening in the EU). In addition, and echoing Marianne’s point on the need for closer harmonisation, Buna will be operating under a central multilateral governance system with a clear set of common standards and rules to ensure the safety and security of the wider ecosystem. 

Relating this back to the need for financial crime compliance, trust and confidence are promoted in two key ways. Firstly, by having comprehensive due diligence applied at the point of onboarding, and secondly by having clear objectives and a clear framework providing comfort for all participants that all payments will be checked by the system. 

Balancing unique risk appetites with common market standards

Whilst a common framework setting out rules, rights and obligations is an admirable aim when seeking to reduce friction in the market, this can also cause conflict. This is particularly true when it comes to the need for financial institutions to determine their own risk appetites and implement standards accordingly. 

Is it then possible to reconcile these two concerns?  

Marianne suggested the two could not be squared, advising instead that stakeholders continue to engage in dialogue and discussion around their concerns. Rather than trying to achieve a single, unified risk appetite across the board, she argued instead that a more achievable goal would be to view these conflicting ideas as a challenge to be managed through dialogue and cooperation.

From the perspective of a respondent bank, Mohamed explained how Bank Misr aligns itself with the risk appetite of its correspondents through a largely manual process. This begins with a due diligence exercise that allows the bank to understand their correspondents’ risk appetite in the region at a more detailed level. For example, nested transactions (where the respondent’s customer is also a respondent bank) might sit outside the correspondent’s risk thresholds and should therefore be avoided. Naturally then, for both parties transparency is absolutely critical.

The effect of disintermediation on managing risk appetite

Developing the conversation further, Shane explained how Buna is disrupting traditional systems by removing the intermediary correspondent. However, the outcome is a much more complex risk appetite management process resulting from involving a network of disintermediated players rather than one, or a few, correspondent banks. 

In response, Manuel stressed the importance of aligned regulatory frameworks and ensuring the implementation of comprehensive AML and counter terrorist financing (CTF) measures within the platform. Sharing information and intelligence is critical to tackling financial crime issues, and Buna is helping participants to manage their counterparty risk by performing pre-onboarding due diligence. Buna has also partnered with Elucidate to provide risk ratings for each participant that further helps the community to understand and accommodate their individual risk appetites. 

Collaboration is fundamental to trust and transparency

In Marianne’s view, the single most impactful change that could be made to strengthen trust and transparency between the various actors in the ecosystem - between regulators, standard setting bodies and financial institutions - would be continued engagement and collaboration across the MENA region. Whilst risk appetites have to be defined by financial institutions themselves, regulators could provide the frameworks as well as the platforms needed for deeper discussion and cooperation.

Muhammed echoed Marianne’s call for more collaboration, adding that increasing investment in technology was crucial given the recent widening of the payments industry to include non-banking financial institutions (NBFIs) such as telephone operators and exchange offices. This was particularly important since disintermediation in financial services in general, and the rise of NBFIs in particular, had led to a decrease in transparency. This needed to be addressed urgently if the fight against financial crime was to be successful in the MENA region. 

Key takeaways

Trust and transparency are critical factors that help to oil the machinery of cross-border financial markets. They are also critical in ensuring the safe and secure delivery  of financial crime risk management and compliance. However, challenges such as poor data quality, the lack of investment in technology and fragmented regulatory regimes can increase friction in the relationships between respondents and their correspondent banks, thereby eroding confidence. 

The good news is that solutions are at hand and are actively being worked on. Greater mutual recognition of regulatory frameworks, regulatory support and information sharing are key to emerging initiatives in the MENA region, such as the Buna payment platform. Increased investment in technology will also help to create transparency and ensure financial institutions in the MENA region operate within the risk appetite of their international clearers, becoming trusted business partners rather than high risk entities.