In this volatile environment, strengthening corporate governance practices will continue to be on banks’ agendas, especially since the issuance of the Central Bank of the United Arab Emirates’ (CBUAE) Corporate Governance Regulation and Standards in July 2019. Banks are revising the mandates of their board, updating the assignment of authority, and developing key policies and processes corresponding to the management of conflicts of interest, related party transactions, insider trading and whistleblowing.

As customers become digitally savvy, social media perception becomes of paramount importance. For the second consecutive year, KPMG partnered with social media analytics company, DataEQ, to analyze the key drivers of consumer satisfaction amongst major UAE retail banks, and ascertain whether they are meeting expectations of conduct and service. Many customers frequently complained about a lack of efficient support for their reported issues relating to business conduct, which included suspected fraud and incorrect information being received.

Public interest in conduct risk infringements remains high, exacerbated by the pressure on employees and management to meet financial targets and contend with competitive threats. The failure to understand and mitigate conduct risk may expose banks to drastic regulatory action, fines and reputational damage, which can harm business for many years following the incident.

As banks adapt to the post-pandemic economy, they are relying heavily on Artificial Intelligence (AI) and Machine Learning (ML) to manage these diverse regulatory developments. From chatbots to fraud detection, innovative technological tools that utilize large volumes of data are increasingly being used for more efficient credit, investment and business-related decision making. AI and ML powered risk management solutions can also be used for model risk management (back-testing and model validation) and stress testing, as required by global prudential regulators.

In a bid to strengthen regulation, supervision and stability within the banking industry, the Basel Committee has introduced a standardized approach to calculate minimum operational risk capital requirements, effective January 2023. The new approach seeks to restore credibility in the calculation of risk weighted assets (RWAs) and to improve the comparability of banks’ capital ratios. This means it is critical that banks maintain high quality operational risk teams, and use risk modeling and scenario analysis to assist with decision-making. 

A maturing corporate governance landscape

Two and a half years have passed since the introduction of the Central Bank of the UAE (CBUAE) Corporate Governance Regulations. Maryam Zaman reflects on what we have learned since then.

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As the global banking sector continues to undergo rapid and immense technological, environmental and regulatory advances, our industry must enact robust corporate governance systems to meet this pace of development. At FAB, we believe that strong corporate governance can enable banks to approach change more effectively and consistently. At the same time, these frameworks can create the conditions for meaningful and sustainable growth for all.

Shargiil Bashir
Chief Sustainability Officer
Head of Corporate governance, First Abu Dhabi Bank

Organizational conduct - from risk to an opportunity

Reputational costs are significant when conduct risk materializes. Aroon Kumar explains why this is particularly pertinent for banks, as they are uniquely reliant on the confidence and trust of their customers.

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Abbas Basrai

Partner, Head of Financial Services

Innovative technologies in risk management

The banking industry, an industry that relies heavily on the use of data, is increasingly starting to adopt Artificial Intelligence (AI) and Machine Learning (ML) techniques. Abbas Basrai describes how it can leverage their powerful capabilities.

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Operational risk in the new Basel framework

A new standardized approach introduced by the Basel committee has led to a number of changes for banks, with implications for how they manage their capital. Slim Ben Ali assesses its impact on financial institutions’ levels of operational and regulatory risk.

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