ESMA Withdraws Recognition from Dubai Clearinghouse Over Money Laundering Concerns

The European Securities and Markets Authority (ESMA) has removed its recognition of the Dubai Commodities Clearing Corporation (DCCC) due to its concerns about money laundering. Financial institutions in the EU can no longer use the services of the clearinghouse to conduct financial transactions, as reported by Euronews.

The decision, prohibiting EU banks from using the financial infrastructure, is prompted by the EU’s classification of the UAE as a money laundering threat. The United Arab Emirates (UAE) appears on the European Union’s list of dirty-money jurisdictions.

Last year, ESMA attempted to blacklist DCCC, but the process was halted during an appeal. Now that the appeal has been concluded, ESMA’s decision is now in effect.

Actually, DCCC made an appeal to the ESMA to withdraw the recognition decision as a Tier 1 third-country central counterparty (“CCP”), however, ESMA dismissed the appeal on January 29, 2024, by releasing a legal document.

As per the legal document released by ESMA, the Board of Appeal

“found no evidence that the adverse economic consequences DCCC faced were disproportionate,”

Further, it was reported that,

“Consequently, the decision by ESMA has become fully operational.”

It is further reported, that the decision made by the EU indicates that all UAE clearing houses have lost recognition, following the withdrawal of privileges from Nasdaq Dubai and Dubai Clear last year.

Even though DCCC considers itself the largest and the most diverse clearinghouse in the Middle East, ESMA believes that this move will have limited financial impact.

Post-Brexit, the EU has also tightened its regulation on foreign clearinghouses concerned about the economic risks posed by reliance on London-based financial institutions.

It was also stated in the ESMA document that,

“DCCC has submitted that it possesses substantial current business engagements in the UK”

highlighting the possibility of four UK border members resigning from their positions.

The EU’s decision could also impact the beneficial connection with UK-based members, as the Bank of England has reportedly conveyed that it will mimic the EU’s move.

Back in 2019, the EU’s money laundering blacklist sparked controversy and the member states opposed the European Commission’s attempt to include Saudi Arabia. The UAE was added to the list in the previous year, alongside countries such as South Africa, Gibraltar, and North Korea.

Also read: European Parliament and the Council Agree on Anti-Money Laundering Authority to Actively Fight Financial Crimes