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UAE’s Exit from FATF Grey List

  • 01 Mar 2024
  • 3 min read

Source: BL

Why in News?

The recent removal of the United Arab Emirates (UAE) from the Financial Action Task Force (FATF) grey list has sparked optimism for investment landscapes, particularly in India's Non-Banking Financial Companies (NBFCs).

How does the UAE's Exit from Grey List Impact Investments in Indian NBFCs?

  • Investment Policies: A Reserve Bank of India (RBI) circular in 2021 outlined investment regulations for NBFCs, distinguishing between investments from compliant and non-compliant FATF jurisdictions.
    • Investments from non-compliant jurisdictions faced restrictions on acquiring significant influence in Indian NBFCs.
  • Impact on UAE Investors: The UAE's removal from the FATF grey list facilitates easier investment for UAE-based investors in Indian NBFCs.
  • Cross-Border Investment Facilitation: The eased restrictions encourage cross-border investments between India and the UAE, benefiting both the countries' financial sectors.
  • Increase in FPI and FDI: The UAE's exit may reduce Know Your Customer (KYC) requirements for foreign portfolio investment (FPIs) from the region, potentially boosting FPI inflows into India (expected to double).
    • Removal of UAE from grey list may lead to increased foreign direct investment (FDI) contributing to economic growth. This competition could drive innovation and attract more investments to both regions.

What is a Non-Banking Financial Company (NBFC)?

  • About: An NBFC is a company registered under the Companies Act, 1956, involved in various financial activities such as providing loans and advances, acquiring shares, stocks, bonds, debentures, and securities issued by the government or local authorities.
    • NBFCs do not include institutions primarily engaged in:
      • Agricultural or industrial activities
      • Purchase or sale of goods (other than securities)
      • Providing services
      • Dealing in immovable property.
  • Difference Between Banks & NBFCs:
    • While banks can accept demand deposits from customers, NBFCs are not permitted to do so.
    • NBFCs are not part of the payment and settlement system, unlike banks.
    • NBFCs cannot issue cheques drawn on themselves, which banks are authorised to do.
    • The deposit insurance facility provided by Deposit Insurance and Credit Guarantee Corporation is not available to NBFC depositors, unlike bank depositors.

What is FATF?

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