Insights: Key compliance trends in the Middle East
We look at how companies can navigate the compliance landscape in the Middle East
20 January, 2025
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The Middle East’s compliance landscape is undergoing significant transformation, influenced by geopolitical shifts, economic realignments, and technological advancements. For chief compliance officers (CCOs) and businesses operating in this dynamic environment, understanding and adapting to these evolving trends is crucial.
The Middle East’s geopolitical landscape has always been complex, but recent crises are reshaping the region in ways that are sure to keep CCOs awake at night.
Such upheavals create cascading risks for businesses operating in or trading with the region. Disrupted supply chains are an immediate concern; for instance, intensified conflict zones or border restrictions could delay shipments, increase costs, and disrupt operations. For sectors like energy and logistics, where the Middle East serves as a vital hub, these disruptions could ripple globally.
Further complicating matters, the anticipated return of stringent US sanctions — potentially targeting entities with links to Iran or Syria — will require heightened vigilance in know-your-customer (KYC) and anti-money laundering (AML) practices. As new alliances form and old ones dissolve, ensuring accurate due diligence will be critical. Businesses must not only identify sanctioned entities but also map out complex ownership structures to avoid secondary exposure. In 2024 alone, over 25 per cent of financial institutions reported increased compliance costs tied to enhanced KYC requirements, according to Thomson Reuters.
While geopolitical tensions present challenges, China’s continued economic slowdown may offer unexpected opportunities for the Middle East. As Beijing’s economy grapples with structural weaknesses and declining global demand, its investments and energy imports are likely to scale back. This deceleration could reduce the region’s dependence on China as one of its primary trading partners, encouraging Gulf states to diversify their economic alliances further westward.
Saudi Arabia, in particular, is well-positioned to capitalise on this pivot. With the Middle East increasingly marketed as a stable and attractive destination for foreign direct investment, the region is poised to absorb capital flows redirected from East Asia.
In 2022, Saudi Arabia alone attracted $20.7bn in foreign direct investment — a 337 per cent increase from 2016 —underscoring the region’s growing appeal to global investors.
This shift is also driving significant growth in sectors like clean energy, logistics, and financial services, as Middle Eastern nations continue the work to diversify their economies. For compliance teams, this diversification introduces new challenges, including navigating unfamiliar regulatory landscapes and managing the risks associated with multi-jurisdictional operations.
The Middle East is witnessing an influx of hedge funds, family offices, and private equity firms registering at ADGM or the DIFC, drawn by the region’s economic prospects and relative stability. This trend introduces sophisticated financial instruments and complex investment structures, elevating the importance of robust compliance mechanisms to mitigate risks such as money laundering and fraud.
Concurrently, the region’s relatively lenient stance on cryptocurrencies has positioned it as a haven for digital asset enterprises. The exit of major crypto platforms like Binance from the US market, due to stringent regulations, underscores this shift. However, the absence of rigorous oversight in the Middle East could expose businesses to financial crimes and regulatory scrutiny from other jurisdictions, underscoring the necessity for comprehensive internal compliance protocols.
Enhancing compliance frameworks: Key focus areas
1. Trade sanctions and export controls: The reimplementation of US sanctions demands meticulous compliance strategies. Businesses must establish robust screening processes to ensure transactions do not involve sanctioned entities, thereby averting severe penalties.
2. Anti-bribery and corruption (ABC): Aligning with global standards, Saudi Arabia has intensified its anti-corruption efforts, mirroring the US Foreign Corrupt Practices Act (FCPA). This alignment necessitates that companies operating in the kingdom implement stringent ABC policies and training programmes to ensure adherence to both local and international regulations.
3. Investigations and due diligence: The intricate geopolitical landscape requires comprehensive due diligence to identify potential risks in business partnerships. Proactive internal investigations are essential to detect and address compliance issues promptly, thereby safeguarding organisational integrity.
4. Data privacy and cybersecurity: The enactment of data protection laws, such as Saudi Arabia’s Personal Data Protection Law (PDPL), signifies a regional shift towards stringent data governance. Organisations must invest in robust data management systems and cybersecurity measures to comply with these regulations and protect against cyber threats.
The talent imperative in compliance
The evolving compliance landscape underscores the critical need for skilled professionals adept at navigating complex regulatory environments. However, the Middle East faces a significant talent shortage in this domain.
According to Mercer’s 2024 Global Talent Trends Study, 50 per cent of regional HR professionals identify skills shortages as a top threat to their businesses. This scarcity is particularly acute in specialised areas such as compliance and governance, often necessitating the relocation of qualified professionals from global markets to fill the gap.
Predictions for the compliance landscape in 2025
- Integration of artificial intelligence (AI): A study by PwC predicts that by 2025, 70 per cent of businesses in the Middle East will incorporate AI into their compliance programs, significantly altering the way companies approach data protection and regulatory adherence.
- Emphasis on environmental, social, and governance (ESG) factors: Global trends indicate a shift from voluntary to mandatory ESG disclosures. Middle Eastern businesses are expected to align with this movement, necessitating the integration of ESG considerations into compliance frameworks.
- Enhanced cybersecurity measures: Cybersecurity has become a critical focus with the increasing digitisation of business operations. Nearly half of the organisations in the Middle East have dedicated resilience teams in place, reflecting a proactive approach to safeguarding economic growth and innovation.
For businesses operating in the region, staying abreast of these trends and proactively adapting compliance strategies is essential.
Investing in skilled compliance professionals and leveraging advanced technologies will be pivotal in navigating the complexities of 2025 and beyond.
The writer is the MD, In-House Counsel Recruiting at Major, Lindsey & Africa.
Read: The path to sustainable business through ESG compliance
