At the heart of the Arabian Peninsula, the UAE is home to some of the world’s wealthiest people and an increasing number of foreigners.
In 2022, the Middle East witnessed an unprecedented influx of affluent migrants. The United Arab Emirates (UAE), in particular, attracted more than 5,000 newcomers, the largest net inflow of millionaires globally. This exceeded earlier projections in the latest Henley Global Citizens Report, published in September by Henley & Partners, an international firm that studies private wealth and investment movements around the globe.
The country is a “powerful magnet for capital,” observes Naushid Mithani, head of Private Banking for the UAE and global South Asian community at Standard Chartered.
Since it gained independence from the UK in 1971, the UAE has had the ambition to stand as a global hub for wealth. To attract the rich, the country developed infrastructure, deployed significant tax incentives, bent local traditions to allow the Western luxury lifestyle to prosper and offered ample investment and funding opportunities.
“With its tax-efficient environment, global connectivity and ease of setting up a business, the UAE was already an ultimate destination to park wealth,” comments Vipul Kapur, head of Private Banking at Mashreq—the UAE’s largest private bank.
In the past three years, the local leadership reinforced this strategy. Although the world was shut down due to the Covid-19 pandemic, the UAE doubled down on vaccinations to keep Dubai open to travel and business.
Meanwhile, the authorities further adapted regulations to make foreigners feel welcome and at home. Significant recent policy changes include the 2021 introduction of 100% foreign ownership of companies not considered of strategic importance (instead of 49% previously). And a 10-year Golden Visa scheme, introduced in 2019, allows for non-Emiratis to project long-term investments. These have been “key drivers of the influx of new millionaires into the country,” says Kapur.
As a result, newcomers from all parts of the world, including other Middle Eastern countries and also Asia, Africa and Europe, are boosting demand for wealth management services. The recent conflict in Ukraine also explains part of the current capital influx toward Dubai and Abu Dhabi. In 2022, when the war started between Moscow and Kyiv, the UAE remained relatively neutral and became a haven for affluent Russians looking to escape Western sanctions.
Adapting The Offer
Global financial institutions are expanding their private banking and wealth management divisions around the Gulf to cater to the growing needs of the Middle East’s ultrarich. In February, Swiss group Edmond de Rothschild opened a brand-new Middle East and North Africa (MENA) hub in Dubai’s International Financial Center.
In 2022, HSBC opened an onshore private bank in the UAE to serve clients with investable assets worth $2 million or more. “We have matched the growing influx of customers to this market with an increase in relationship manager coverage by streamlining our onboarding and wealth management processes,” says Farzad Billimoria, senior executive officer and head of Private Banking for the UAE at HSBC.
“We have been attracting many new clients over the past years on the back of the accelerated wealth creation in the region and the stronger visibility of the BNP Paribas group in the GCC [Gulf Cooperation Council]. Our position of being a solid, trusted, diversified and client-friendly institution with a strong purpose has been a key enabler in making BNP Paribas the European reference bank for our clients,” says Masroor Batin, CEO of BNP Paribas Wealth Management for MENA, who also reports fast growth.
Big international banks come to the region offering global investment networks, structured credit facilities and tailored services like Shariah-compliant products.
“Our method involves combining a deep understanding of local markets on the ground with our expansive network and insights across our global footprint. … We remain confident that the ‘bridge’ concept is vital in satisfying the UAE’s and the entire region’s ambitions for capital attraction and economic growth,” says Standard Chartered’s Naushid Mithani, referring to the bank’s venture capital program that identifies and helps grow startups.
Local lenders are also stepping up their game, restructuring their wealth and asset management offerings and finding segments where they can compete.
“UAE banks have been able to add value in the private banking segment with their in-depth understanding and reach on the regional fixed-income and equity markets,” explains Kapur. “GCC countries, especially the UAE, have seen an influx of primary bond markets and a healthy deal flow of new equity issuances. With the yields moving higher in the last year, bank deposits and investment-grade issuances from regional banks, sovereigns and quasi-sovereign firms have been attracting attention from investors. In addition, Emirati lenders have also been active in providing bespoke lending in the real estate space, which is of great interest to global investors.”
While the UAE remains the prime market for private banking in the Middle East, lenders are also looking to build networks in neighboring countries, especially in Saudi Arabia, the Arab world’s biggest and fastest-changing economy, or in Qatar.
As it attracts increasing amounts of capital from all parts of the world, the UAE is on the watch list for money laundering.
“Due to the influx of wealthy individuals and money, the country’s banking sector is exposed to higher risks, as instances of cybercrime and money laundering have increased in the past decade,” admits Kapur.
In March 2022, the Paris-based Financial Action Task Force (FATF), a global watchdog for financial crime, put the UAE on its “grey list” of jurisdictions subject to increased monitoring, along with countries like the Cayman Islands, the Democratic Republic of Congo, Syria and Yemen. In 2021, the Pandora Papers investigation, based on 2.9 terabytes of leaked documents, also pointed out the Emirates, especially Dubai, as a hub for illicit financial transactions.
Faced with such accusations, the authorities want to polish their image. “The UAE will continue its ongoing efforts to identify, disrupt and punish criminals and illicit financial networks,” the UAE’s Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) said in a statement following the FATF classification. In 2022, the Emirati Federal Tax Authority and the Dubai Financial Services Authority (the Dubai International Financial Centre’s regulator) announced whistleblower programs to combat money laundering and tax evasion. The central bank also introduced new AML guidelines, and new regulations were enacted in late 2021.
Compliance is sometimes seen as time-consuming and costly for banks; but in Dubai, some lenders find that operating in a challenging environment can foster innovation.
“This has increased the difficulty of onboarding new clients and interrupted business with some, but it has also served as a tremendous opportunity for wealthtech solutions that focus on streamlining regulatory compliance in client due diligence, sources of wealth assessment and back-office automation,” points out Mithani.
Meanwhile, locals who were traditional clients of prestigious private banks in Geneva, Paris and London also crave wealth management solutions at home. Swiss asset management firm Lombard Odier published a study in November about the financial habits of young Middle Eastern high-net-worth individuals. The survey shows that 89% of respondents below the age of 40 want to keep their assets in the region and plan to keep on going so over the next five years.
The report highlights that “while their values are strongly aligned with traditional Middle Eastern values, younger investors are also likely to be more flexible than their older counterparts.” Passing on wealth is paramount for local families. Younger respondents show a greater appetite for risk-taking and a strong need to diversify investments away from hydrocarbons. Both the younger and older respondents show a desire to participate in equity markets, creating new opportunities for banks.
“They are looking to diversify internationally and come to us for our global expertise,” says Batin. “Our clients in the private wealth space often seek access to the global capabilities we provide through our One Bank approach, making this one of the key enablers for our future growth.”
As the survey also shows, new technologies and values-based investments are among the most popular asset classes among young Middle Eastern investors. Following Islamic investment principles is important for 64% of respondents, and 91% report using Shariah-compliant solutions for at least some of their assets. Sustainability and environmental, social and governance concerns were already key investment factors for 81% of respondents, with 88% saying they plan to increase their exposure. Moreover, “74% believe that new business opportunities will be found in sustainable sectors in the region, such as renewable energy, recycling solutions and sustainable farming.” Over recent years, most GCC countries have committed to zero-carbon targets and invested in green energies—essentially solar-power systems.
To attract even more rich family businesses to its shores, the UAE set up a Global Family Business and Private Wealth Centre in 2022. Such moves, the country hopes, will boost the financial sector’s contribution to overall GDP and fast-track economic diversification.