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Embracing Digital Innovation in Middle East Financial Services

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The financial services industry is currently on the brink of a massive technological disruption. Financial institutions are now beginning to actively explore new technologies to further automate routine AML and KYC processes. As discussed in the previous blogs of this series, the Middle East faces unique complexities and differences in KYC and compliance processes that make an investment in Financial Technology (FinTech) and Regulatory Technology (RegTech) all the more crucial in order to effectively meet the needs of the region.

The area of RegTech and FinTech  is fast becoming an emerging field for innovation and entrepreneurship in the Middle East. The number of these start-ups in the region more than doubled between 2013 and 2015 and show no sign of stopping. Investing in technology to automate routine AML and KYC processes allows firms to re-allocate high-value resources to improving the customer experience

Digital Transformation in the Middle East

The Middle East has shown a strong interest and investment in the FinTech and digitalization. Bahrain, Qatar, and the United Arab Emirates are some of the top countries in the world for digital consumer adoption. Several other countries have introduced new digital measures:

  • UAE – the recently launched FinTech Hive at the Dubai International Financial Centre (DIFC) aims to use ‘financial free zone’ networks to create technology solutions to boost the financial services industry
  • Abu Dhabi – the Abu Dhabi Global Market created the region’s first “regulatory sandbox” allowing new products to be tested without full regulatory compliance
  • Bahrain – The Economic Development Bank (EDB) created a regulatory sandbox that enables FinTech firms and financial institutions to test their ideas within a supervisory framework
  • Saudi Arabia – Crown Prince Mohammad bin Salman has a vision for 2030 of Saudi Arabia becoming a technology hub for the Middle East.

First Wave of Technology Development

In the Middle East, financial institutions are already beginning to make use of innovative technologies such as Artificial Intelligence (AI), Robotic Process Automation (RPA), and blockchain in order to enhance productivity and operational efficiency. These technologies allow for the re-use and sharing of data and documentation across jurisdictions, leading to high levels of adoption in labor-intensive and high-risk areas.

Below, we briefly outline how AI, RPA, and blockchain can digitalize various client lifecycle management processes:

AI

Artificial Intelligence (AI) I can be used for customer due diligence (CDD) via Natural Language Processing (NLP) to quickly ‘read’ large amounts of information in any language. This allows for intelligent extraction of risk-relevant facts from huge volumes of data and also to de-duplicate any information. AI can allow data to be classified automatically for the KYC profile and make analyzing risk a much easier task.

RPA

Robotic Process Automation (RPA) enables financial institutions to automate repetitive and non-value adding tasks. This is ideal for a field like compliance that is mainly rule-based and changing constantly. RPA can streamline KYC decision-making through more effective client data capture and regulatory classification and evidencing. It further aids the digitization of client documentation, providing best guess attempts to categorize and index information, requiring only a final review from users.

Blockchain

In a regulatory environment, blockchain’s attributes of security, distributed replicated data, and decentralization provide a potential solution to improving efficiency and customer experience by reducing costs and allow the financial institution to focus more on customer-centric activity. A blockchain-based registry of client data can also potentially remove the duplication of effort involved in KYC checks.

There are many ways that technology can increase efficiency and create a more streamlined client experience. The field of FinTech/RegTech, while quickly maturing, is still new. The true value of blockchain for financial services is yet to be fully proven. Time will tell how these new technologies, and others that have yet to hit the mainstream, can revolutionize the financial services industry.