Saudi Central Bank is reportedly subjecting UAE-bound transfers to high-risk scrutiny

The Saudi Central Bank (Sama) reportedly placed financial transfers to the UAE under additional scrutiny, typically applied to countries considered high-risk for illicit money flows, Reuters reports, citing anonymous sources.

What’s going on? The central bank reportedly notified major banks earlier this year to apply these measures to settlements with the UAE. Several executives told the newswire that Saudi banks delayed or returned transfers in various currencies without providing an official explanation.

The UAE is reportedly among more than half a dozen countries in the region deemed high-risk for financial crimes by Sama. The list includes Lebanon, South Sudan, and Iraq, all placed on the Financial Action Task Force’s “grey list” of jurisdictions.

Not the first time we’re hearing about it: A banking source confirmed to EnterpriseAM last month that some payments from banks in Saudi Arabia to accounts in the UAE have been delayed, returned, or blocked outright since at least May, confirming reports first picked up by the Financial Times and Bloomberg.

BUT- The official line from both sides is that no restrictions are in place. Sama denied the presence of restrictions on specific countries, stating that all banks in the Kingdom apply necessary controls and preventive measures to mitigate risks based on their internal assessments. A UAE official also told Reuters that the Economy Ministry received no reports from firms about facing such difficulties.

Decision to leave

Business clients have even asked some UAE-based firms to set up operations elsewhere, with the head of a Dubai-based consultancy telling the newswire that some Saudi clients were struggling to pay his firm and had advised him to move. Two other UAE-based companies received similar requests from clients, according to an investor with stakes in both firms. The clients said Saudi authorities had asked them not to do business with UAE-based firms.

Rivals

This oversight is meant to be a “subtle message” to Emirati leaders, regarding the importance of maintaining good relations after a period of rising tensions between the two neighbors, unnamed financial-sector sources told the newswire. The disruptions are expected to cause delays and losses to numerous businesses on both sides, with investor appetite already suffering from the ongoing regional conflict.

Behind these tensions: The interests of both nations have increasingly diverged in the past couple of years over oil quotas, geopolitical influence, and competition for foreign talent and capital. Their differences became more public late last year over their support for opposing sides in Yemen, with Saudi Arabia accusing the UAE of threatening its security by backing forces seeking to break away from Yemen and advancing toward its borders. Further disagreements emerged over how to respond to Iran’s war, even as they sought to maintain a united front.

An economic rupture remains unlikely, though: The GCC neighbors aren’t expected to go through an economic fallout due to their strong ties across trade, investment, and logistics. Pundits agree a break would serve neither side’s interests.