In 2024, there’s a notable parallel between how individuals adhere to the law and how they break it. Unlike the pre-pandemic, cash-driven era, wrongdoers today have adapted to the digital age, operating remotely and often remaining invisible.

From paying a traffic fine to being accused of financial fraud, law enforcement and policing have evolved to keep up with misconduct across various digital platforms. Nasdaq Verafin’s 2024 Global Financial Crime Report highlights that while financial regulators are focused on preventing financial crime, they face considerable challenges in keeping up with complex, and often, conflicting regulatory requirements and the rapidly changing landscape of financial crime threats.

The UAE is no exception to these global threats and developments. In 2024, the Dubai Financial Services Authority (DFSA), the independent regulator for financial services in the Dubai International Financial Center (DIFC), issued eight enforcement actions against entities involved in misleading investors, failing to comply with anti-money laundering (AML) laws, and obstructing DFSA investigations.

However, unlike traditional legal proceedings that involve presenting arguments before a judge and jury, the DFSA takes a unique approach by publicly dissecting each case, offering detailed insights into the crimes committed.

STOPPING COMPLEX FINANCIAL CRIMES 

Despite the growing scale of financial crimes in the DIFC year after year, the DFSA operates with its cardinal rule of three: upholding integrity, maintaining transparency, and enforcing action. While these principles can be complex to implement, they serve as the foundation of financial governance within Dubai’s thriving financial sector.

According to Ian Johnston, DFSA’s Chief Executive, “We [DFSA] are here to make sure investors are adequately protected but not overprotected.” 

Striking a balance between creating regulations that apply universally and using case-based investigations for deterrence is key to fostering innovation in Dubai and the broader UAE.

The DFSA’s enforcement division is the practical arm of the country’s extensive financial regulatory network. Despite receiving less than 10% of the DFSA’s resources and personnel, enforcement is seen as the “top of the pyramid,” where wrongdoers are actively investigated, according to Johnston.

The DFSA spotlights deterrence and misconduct to maintain transparency in a system riddled with differing narratives and contradictory evidence. “If there’s an outbreak of something going wrong somewhere in your market, the knee-jerk response by many regulators is to put in more regulation,” Johnston highlighted. 

However, Johnston noted that developed economies have shown that “lifting the regulatory bar imposes a regulatory burden on everyone.”

Despite its growing global presence, the DFSA has opted for a targeted approach to deterrence, addressing misconduct early on. By swiftly taking action against bad actors, the DFSA ensures that legitimate participants remain unaffected and that the system isn’t hindered by excessive regulation.

For the DFSA, transparency goes beyond merely assessing facts in an active investigation. While transparency is a widely accepted industry standard, the DFSA engages the public in dialogue to reinforce its credibility as a financial regulator. To maximize the impact of its transparent system, the DFSA publicly names all defaulters involved in any misconduct in detailed media releases after concluding a case. This approach allows the DFSA to build a self-regulating ecosystem beyond the international model of broad regulatory frameworks.

Waleed Al Awadhi, COO of the DFSA, emphasized the value of open communication across various channels as an underutilized tool in regulation. “You don’t see a lot of government bodies or financial regulators maintaining close contact with the media, maybe with the public and the ecosystem they operate within, but not so much with the media,” Al Awadhi explained. This approach to fostering transparency and accountability helps build trust and keeps the public informed, reinforcing the DFSA’s commitment to open dialogue and effective regulation.

Inspired by the likes of the Basel Committee, the DFSA has meticulously struck a balance between financial freedom and prudence. “We are a unique regional establishment,” said Al Awadhi. “We don’t hide. To ensure market integrity and transparency, we show that this [DFSA] is no conduit for illicit activity,” Al Awadhi stressed. 

“Our objective is to deter misconduct,” Johnston reiterated. By naming someone who has faltered, a looming sense of awareness is created within a DIFC ecosystem that houses more than 2000 companies. The deterrent effect achieved from publishing enforcement results is as vital to Dubai’s regulatory framework as conducting fair and diligent investigations to identify misconduct. 

FACILITATING THE RIGHT AMOUNT OF RISK 

Rarely are the words ‘integrity’ and ‘risk’ uttered in the same breath, especially when discussing the future of financial frameworks and regulation. The DFSA aspires to tweak this narrative to promote transparency and innovation in Dubai’s sprawling economy.

Patrick Meaney, Head of Enforcement at DFSA, adopts a clear modus operandi when defining the fine line between freedom and risk. “We don’t want to be nitpickers and stifle innovation. But dishonesty and a level of recklessness is unacceptable,” said Meaney. This coupled with repeated misconduct, is a clear sign of a gnawing bad actor in the making – a reality, if detected early on, that is intolerable to Dubai’s compliance agents. 

Al Awadhi offered an eagle’s eye view of the same principle. As the world transitions into a borderless economy, defining a space where regulation and innovation coexist is an emerging challenge. As regulators, “we must embrace the reality that economies worldwide” are perennially evolving. But while adjusting to these cyclical ebbs and flows, and tides of technological advancements, Al Awadhi underscored the importance of operating at the “highest integrity standards” and leading with timely regulation. 

Just as a certain degree of risk is essential for growth and innovation, the agency and facility to appeal to a fair regulator must also exist. To adhere to the highest standards of integrity, Dubai’s financial market has established an independent body that pays heed to any form of regulatory misalignment. 

Fines, penalties, and bans are frontline remedies to technical breaches and repeated misconduct. But if a DIFC firm dishonors the DFSA badge or the integrity of the system at large, a detailed disposal of the entity is issued. 

Just as money and its diverse mediums continue to evolve, transacting and generating revenue are also in flux. As business cycles fluctuate and innovation accelerates, intuitive regulation is emerging, with the UAE at the forefront of this evolution.