UAB Magazine Issue October 2026

86 Study Union of Arab Banks - October - 2026 Digital assets: New opportunities and new responsibilities Digital assets are no longer confined to cryptocurrency trading. Banks and financial institutions are exploring digital custody, tokenized deposits, blockchain-based settlement, and the use of distributed ledger technology in trade finance and other financial services. These developments could help reduce settlement times, improve the traceability of transactions, and make certain financial processes more efficient. For Arab banks, they may also offer new ways to serve businesses engaged in international trade and customers seeking faster cross-border payments. But digital transactions can be difficult to assess when ownership is unclear, transfers pass through several service providers, or the identity of the ultimate beneficiary cannot be established. Transactions involving digital assets may also cross multiple jurisdictions, each with its own regulatory requirements. For banks, the answer is not to treat all digital assets as inherently risky. Instead, they need to understand the specific activity, the parties involved, the technology being used, and the legal obligations that apply. Customer due diligence, sanctions screening, transaction monitoring, cybersecurity, and clear procedures for escalating suspicious activity remain essential. Hence, a bank considering digital-asset services should assess the risks before launching a product, rather than attempting to build adequate controls after the business has already expanded. Stablecoins: a payments opportunity that requires careful management Stablecoins are digital tokens designed to maintain a relatively stable value, usually by reference to a currency such as the U.S. dollar. Their potential applications include cross-border payments, digital commerce, and the transfer of funds between participants in digital-asset markets. For Arab banks, dollar-backed stablecoins could eventually offer additional payment channels for certain customers and businesses. They may also increase competition in areas traditionally served by correspondent banks and established payment networks. Yet the convenience of transferring a digital token should not be confused with the simplicity of managing the underlying financial risks. Banks need to understand how a stablecoin is backed, who is responsible for redeeming it, how reserves are managed, and what happens when redemption requests rise sharply or market confidence weakens. The U.S. GENIUS Act, signed into law in July 2025, established a federal framework for payment stablecoins. Its implementation involves requirements relating to permitted issuers, reserves, supervision, and measures to prevent illicit finance. During 2026, U.S. authorities have advanced proposals addressing anti-money laundering, sanctions compliance, and customer-identification requirements for covered issuers. These developments are important for Arab banks that may use U.S.-linked stablecoins, partner with regulated issuers, or provide services to customers who transact in them. The precise obligations depend on the bank's activities and the applicable legal framework; not every foreign bank automatically becomes subject to every U.S. stablecoin requirement. Artificial Intelligence: Powerful tools with new forms of risk AI is already being used in banking for fraud detection, customer service, credit assessment, transaction monitoring, and operational automation. More advanced systems can analyze large volumes of information, identify unusual patterns, and help employees make decisions more quickly. These capabilities are particularly relevant to compliance, where AI can help banks identify relationships between customers, transactions, and counterparties that might be difficult to detect through conventional screening alone. It can also help prioritize alerts, allowing compliance teams to concentrate on cases requiring closer investigation.