More and more corporates are starting to investigate alternative sources of financing as the weight of increased regulation is felt across the Mena region.


The increasing impact of regulation is forcing corporates to look beyond banks for their funding needs, said corporate panellists at GTR Mena Trade Finance Week in Dubai.

“Alternative financing will come to the fore and will be the norm, rather than the exception, as KYC requirements continue to pose adverse requirements on corporates,” said Paul Hussey, corporate vice-president, treasury at global engineering design firm Aecom, speaking on the regulation panel at the event in February. Audience members agreed with the premise: in a live poll 57% of corporate attendees said that they had started to investigate alternative financiers.

61% of all audience members (banks and corporates) voted that increasing regulatory compliance is lowering bank appetite for lending. The fact was conceded by a banker on the regulation panel: “Banks are at the stage where they are building up, costing and calibrating their financial risk appetites. In the short term, while these decisions are being taken, some business is being turned away,” said Sean Edwards, head of legal at SMBCE. However, none of the bankers on the panel could point to the exact number of prospective deals their institutions had lost, or had not been able to do, because of the impact of regulation.


No clear standards

Panellists agreed that the lack of a standard approach to regulation is impeding companies’ requisite interpretation and preparation for the rules: corporates referred to the documentation requirements for KYC in particular as being constantly changing and increasingly onerous.

“Being a US$20bn turnover company, we are seeing a vast array of different requirements from our banking partners in relation to KYC and compliance,” said Hussey at Aecom. “This impacts our business’ ability to have a quick turnaround and puts a large resource capacity requirement on treasury staff.”

One consideration in this regard is the fact that banks even within the same jurisdiction have the freedom to develop their own risk-based approach according to their individual risk appetite. “Thus inconsistencies may arise in the application of enhanced due diligence performed on corporates in jurisdictions that may be perceived to be high risk,” explained Michael Davis, chief operating officer of the Fimbank Group.

Moreover, for standardisation to occur, it’s not just that all banks would need a single regulator (something they are very slowly moving towards) but alternative finance providers would also have to be pulled into the same regime, said Edwards at SMBCE. “This will not happen through regulation or at least not through regulation alone: competitive forces and corporate preferences have a large part to play. Standardisation is more likely to occur, on a global level, across institutions of the same type but even here there is a significant factor that needs to be taken into account, namely internal policy concerns.

“This is reflected in a number of different areas and simply translates as the institution’s reaction to the regulatory burden of doing different kinds of business. This can be driven by economic factors. For example, smaller banks will find it more difficult to do cost-effective KYC and AML on difficult customers. It is also driven, however, by policy concerns.”

Edwards noted as an example that many of the recent Russian sanctions are not list-based but target certain business activities. “Whether or not a customer is too close to a proscribed sector and therefore whether or not he should be supported often rests on considerations of potential damage to reputation and other intangible concerns which will vary unavoidably from institution to institution,” he added.

Panellists noted that smaller banks are often at the mercy of larger upstream correspondent banks that may take a blanket approach to sanctions regulation without considering the possibility that certain transactions may not necessarily constitute a breach. “By way of example, some of the larger banks will decline certain transactions that may be permissible under a specific OFAC licence,” said Fimbank’s Davis.