Abu Dhabi: The United Arab Emirates wants authorities in the United States to clarify regulations for U.S. banks doing business with UAE banks because the current system is holding up transactions happening via the U.S. dollar clearing service.
UAE central bank governor Mubarak Rashid al-Mansouri said on Wednesday the Gulf state's banks were facing difficulties working with U.S. correspondent banks due to this heavy regulatory burden.
The impact of the regulations is affecting trade and, more specifically, the large numbers of expatriates based in the UAE -- many from Asian and African countries -- who are sending money back home.
The U.S. regulations, part of a tougher regime introduced since the financial crisis, include scrutiny of potential tax avoidance and anti-money laundering rules, which have imposed extra burdens and costs on banks in the United States and also the banks they do business with.
The high cost of these additional checks has led many U.S. banks to reduce the number of international institutions they deal with, which Mansouri said was impacting banks in the UAE.
"In particular our banks that use U.S. correspondent banks as agents to transact business are now facing difficulties as correspondent banks are subject to high costs of compliance with U.S. regulations," Mansouri told a finance conference.
He said there was a constraint on the availability of dollar clearance services -- the ability to process transactions in the U.S. currency -- which was contributing to the UAE banks' problems.
The UAE raised the issue with U.S. authorities in November, asking for clearer compliance guidance to be communicated to U.S. banks, which also needed to understand better the customer base and risk profiles of financial institutions in the Gulf, Mansouri said.
"We made it very clear that de-risking has proven to be wholesale and indiscriminate for our financial institutions and that it is unduly hurting remittances from our large expat workforce to their home countries."
Gulf states have significant numbers of expatriates in the workforce, making up more than 80 per cent of the population in some countries.
He said the UAE had also held talks about the issue with other Gulf countries and international partners including the International Monetary Fund.