EU woos Emirati investors while keeping UAE on ‘grey list’

Abdulla Al Neyadi/ UAE Presidential Court via Reuters

• Brussels delegation visits Abu Dhabi
• EU promotes Capital Markets Union
• ‘Gulf investors are pretty welcome’

The European Union is intensifying efforts to attract investment from the UAE despite keeping the Emirates on its “grey list”, a marker of heightened scrutiny and potential obstacles for investors.

An EU delegation visited Abu Dhabi last week to promote the bloc’s Capital Markets Union (CMU) plan.

A single market for capital, harmonising exchange regulations across the 27 EU member states, would reduce regulatory complexity for foreign investors, according to its backers.

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The CMU strategy includes promoting European bonds, particularly green bonds, to investors from the UAE, as well as encouraging dual bond listings. 

Progress on CMU has been limited since the EU launched the plan a decade ago, but the situation is now considered more urgent as member states need funds to finance the climate transition, the startup sector and defence.

Tatyana Panova, head of the EU Commission’s CMU department, said last week that single supervision of capital markets would make it easier for “foreign investors to interact with the EU”.

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Outside the EU, Emirati entities have tapped into the London bourse for bond listings. Abu Dhabi sovereign wealth fund ADQ announced a $2.5 billion bond issuance in May and energy giant Masdar raised $750 billion through a green bond listing last year.

“Because of the impressive flows of money that are needed to fund the transition in Europe, international and Gulf investors are pretty welcome,” said Chiara Caprioli, head of business development at the Luxembourg Stock Exchange (LuxSE).

“The challenge nowadays is to find trade-offs between what regulators are doing, meaning trying to simplify the rules and harmonise the rules, while continuing to ensure investors’ protections. 

“That’s a very important point if we want Europe to grow its capital markets and create trust not only inward, but from investors that might not completely understand Europe and might want to take the risk from outside to invest into Europe.”

Abu Dhabi Securities Exchange and the Luxembourg exchange signed a memorandum of understanding last year to facilitate dual listings and broaden investor access.

Caprioli pointed to LuxSE’s position in international debt securities listing. It has more than 41,000 listed securities from 1,800 issuers across 100 countries.

LuxSE also established the Luxembourg Green Exchange in 2016. It has more than 1,700 sustainable bonds, representing a total value of around $1 trillion from 270 issuers in 50 countries. 

The UAE is the EU’s top investment destination in the Middle East and North Africa, according to EU statistics. European entities have invested €163 billion ($175 billion) in the Emirates. The UAE’s investment in the EU is around $140 billion.

However, in April, members of the European parliament objected to the removal of the Emirates from its list of high-risk third countries with deficiencies in anti-money laundering and counter-terrorist financing regimes.

The global watchdog, the Financial Action Task Force, removed the UAE from its grey list in February, praising its efforts in combating illicit financial flows.

Philippe Richard, executive director of international affairs at Abu Dhabi Global Market, told the EU investment event that the Brussels grey list had not affected the UAE so far.

Bryan Stirewalt, Mena financial services regulatory leader at consultancy Ernst & Young, warned that multiple grey lists could cause problems.

 “I think every country has a right to create its own grey list – but ‘the’ grey list belongs to FATF and should not devolve into regional grey lists,” he said.

“One of the bigger risks of the world right now is global fragmentation. Less globalisation and more regionalisation causes some inconsistency.”