Banking on Brilliance is a WDC Newsletter series that focuses on the companies providing financial services to the industry, and how they influence and are influenced by reputational risk and risk mitigation in the diamond supply chain. Each article in the series examines the relationship between the provision of financial and credit facilities with the integrity and responsible management of the supply chain.
The first article in the series features the National Bank of Fujairah (NBF) in the United Arab Emirates.
RISK AVERSE BUT CREDIT FRIENDLY
Photo Credit: Towfiqu Barbhuiya on Unsplash.com.
APRIL 3, 2025
In the diamond industry the word Basel was most often associated with the now defunct trade show that used to take place in the Swiss city in early spring, which for decades was the most prominent must-attend event on the European calendar. But even more significant has been Basel’s association with a set of banking accords that over the space of two decades transformed the way business is done.
In 1988, the Basel Committee on Banking Supervision, a group of financial supervisory authorities established by the central bank governors of the Group of Ten (G10) countries, published a set of minimum capital requirements for banks, which came to be known as Basel I. Although the committee did not have the authority to enforce its recommendations, they were implemented nonetheless in most developed economies through national or regional laws and regulations.
In 2004, the committee phased in Basel II, a new capital framework that superseded Basel I. It introduced for the first time minimum capital requirements for operational risk.
The Basel III reforms were published in 2010 and 2011. They followed the financial crisis of 2007 and 2008, and introduced higher capital ratio requirements. And an even more stringent set of capital requirements was introduced in 2017, which some have called Basel IV.
The cumulative effect of the Basel accords was a marked increase in risk averseness on the part of banks, and this has impacted directly on the diamond trade, which is not only capital intensive, but has in the past struggled to provide the levels of supply-chain transparency demanded by the financial institutions.
Starting in the early 2010s, as the Basel III accord was being implemented, the number of banks serving the diamond industry began falling precipitously. Some announced that they were withdrawing from diamond financing completely, while others reduced their exposure to the industry. A good number were intuitions that had been financing the industry for decades.
Most affected by the trend was the credit-dependent midstream of the industry, including diamond manufacturers and traders, who are expected both to pay cash for their rough supply, while providing often generous terms of payment to retail clients.
But there were exceptions to the rule, including banks that stood their ground, and others who began offering services and credit just as some of their colleagues were withdrawing. Among the latter is the National Bank of Fujairah PJSC (NBF) in the United Arab Emirates.
Incorporated in 1982, the bank’s growth and development has tracked that of Dubai, the city in which it is based, which over the period grew into one of the world’s most important diamond centers. The bank provides these services through its corporate headquarters in Dubai and through Antwerp, where it inaugurated its first international representative office in the heart of the city’s diamond district in April 2019.
The WDC Newsletter discussed the bank’s position in the trade and state of diamond industry financing with Paul De Wachter, Head of NBF’s Antwerp Representative Office
Paul De Wachter, Head of National Bank of Fujairah’s Antwerp Representative Office in Belgium.
How would you describe your bank’s relationship with the diamond industry and trade, in terms of exposure and the types of services you provide?
PAUL DE WACHTER: Our objective is to be the preferred banking partner for members of the diamond trade in Dubai and Belgium. We offer fundamental banking services to all companies in the trade that can demonstrate sufficient knowledge related to the trade, and compliance with regulatory requirements. Every new client requires an introduction from existing, trusted customers.
Most of our services within the trade are standard banking products. For companies active in our core market, the UAE, we also offer a variety of additional banking products, including mortgage loans for the corporates or for their promoters, retail banking, credit and debit cards, salary accounts, and more.
Our aim is to develop an ecosystem for the industry that facilitates seamless and fast transactions, allowing the trade to conduct business in a smooth manner.
How long have you been providing services and facilities to the diamond industry, and how has this developed in recent years?
PAUL DE WACHTER: We have been active in the diamond trade since the end of 2014 and have significantly expanded our portfolio over the years, including the opening of a representative office in Antwerp in 2019 to support our Antwerp-based customer base.
Our growth reflects our commitment to understanding the unique needs of the diamond industry and adapting our services to meet those needs effectively.
To what degree do you regard clients from the diamond sector as falling into a category that requires special attention, and why?
PAUL DE WACHTER: Companies in the diamond sector are categorized as high-risk due to the nature of the industry’s business activities. Diamonds as an asset class carry a risk where it can with relative ease be used for illicit activities such as money laundering, fraud and terrorist financing.
Consequently, regulators worldwide impose more stringent requirements on banks providing services to the diamond trade. This necessitates a higher level of scrutiny and specialized attention to ensure compliance and mitigate risks inherent in the industry.
In recent years, there has been a considerable falloff in credit facilities provided by commercial banks to the diamond industry, as well as in the number of banks servicing the industry. To what do you attribute these phenomena?
PAUL DE WACHTER: The reduction in credit facilities and the number of commercial banks servicing the industry can be attributed to several factors. Banks withdrawing from the sector have often been linked to derisking, and strategic decisions to avoid working with businesses subject to enhanced scrutiny due to regulatory requirements.
Additionally, there is also a decreased demand for finance within the industry, as the midstream sector has become largely self-financed.
Furthermore, the recent drop in global production of rough diamonds and in consumer demand for natural diamonds, driven mostly by factors such as the competition of lab grown diamonds, drop in demand from Chinese consumers and the geo-political situation caused not only volumes to go down, but also the value per carat. This has further reduced the need for external financing.
The Dubai branch of National Bank of Fujairah PJSC (NBF).
What were the reasons for your bank taking an approach that is different from those that have withdrawn from the industry?
PAUL DE WACHTER: History has shown that specialist banks, which employ industry experts in both business, credit, and compliance functions, are best positioned to benefit from being active in the diamond trade, despite increased regulatory requirements. Our specialized knowledge and dedicated team enable us to navigate the complexities of the diamond sector effectively.
With the right checks and balances in place, we are confident in maintaining our role as a leading provider of financial services to the industry.
Do you believe that the trend of commercial banks reducing their profile in the diamond industry is reversible, and why?
PAUL DE WACHTER: I do not believe there is a significant need for more commercial banks in the industry. Currently, there is ample finance available, and companies worldwide can find financial service providers for their businesses.
The most vulnerable location currently seems to be Antwerp, where some companies struggle to find service providers. This is also the reason why NBF has started catering to companies in this location and opened a representative office in Antwerp in 2019. This allowed us to fill the gap in the financing requirements of the midstream sector in Antwerp through our trade finance product offering.
From a governance and market intelligence point of view, it is important that we have people present in this market as well, hence the decision to open a representative office in Antwerp.
However, the greater concern is that business owners are unable to find banks for their personal needs, as commercial banks in Belgium are also abstaining from conducting business with them. This leaves them without essential financial services such as mortgage loans, car loans, and accounts for their children, causing significant frustration. Having only a representative office in Belgium, we are unable to service such people in Belgium and they need to rely on other commercial European banks for this purpose. In our home market, the UAE, this issue is much less prevalent, as banks are more open to conducting business.
To what degree have your own compliance requirements impacted your attitude regarding the diamond industry in general, and working with specific clients from the industry in particular?
PAUL DE WACHTER: We believe that by applying stringent rules when opening any new account, we can safeguard ourselves from inherent risk in the industry and prevent diamond being used as an asset for illicit activities. We believe that most companies in the diamond trade are operated by reputable business professionals who merit access to financial services.
However, we adhere to certain checks and balances, such as:
- Requiring companies to be registered diamond dealers and members of one of the diamond bourses that form the WFDB.
- Companies must prove adherence to existing legal and regulatory requirements for dealers in precious metals and stones, such as having appointed a compliance officer, with proven experience, having an internal AML/CFT-compliance policy in place, having registered for GoAML (UAE-requirement), etc.
- Requiring strong references from trusted market players for all onboarded companies.
Once an account is opened, continuous monitoring of account and transaction is conducted and adherence to the above is re-verified regularly.
These measures help us maintain a high standard of compliance and integrity in our operations.
How important is it to your bank that a client or prospective client verifiably demonstrates compliance with the Kimberley Process, WDC System of Warranties, and/or the RJC Code of Practices, particularly if the client is requesting lines of credit?
PAUL DE WACHTER: Compliance with the Kimberley Process is an absolute requirement, and any infringements on the process – such as a customer importing rough diamonds without a KP certificate – would result in the immediate termination of the relationship with the customer, whether borrowing or non-borrowing.
Membership in other industry bodies, such as the WDC and RJC, does provide additional comfort and assists the bank in deciding on onboarding a customer. While not currently an absolute requirement for onboarding, these affiliations offer reassurance. The external audits which some of these bodies conduct, provide additional assurance that the business practices of its members align with industry standards.
What type of verification in terms of responsible business practices do you typically require from clients and prospective clients requesting credit facilities?
PAUL DE WACHTER: In the diamond industry, the most critical parameter we use for verification is the market intelligence obtained from our existing clients. We have established strong relationships with our core customers, and it is in our mutual best interest to onboard clients who will not pose problems for the bank. These problems can be related to both credit and compliance risks. Therefore, we place significant importance on market intelligence during the onboarding process.
Through in-depth discussions with potential new clients, we gather comprehensive information on their responsible business practices. This includes understanding their operational procedures, compliance policies, and overall business ethics. We never rely solely on one aspect of verification; instead, we need to have full confidence in all these practices before considering onboarding. This thorough approach helps us mitigate potential risks and maintain the integrity of our client base.
Similar rules apply to both borrowing and non-borrowing customers, as compliance risk affects all accounts, not just those with credit facilities. As mentioned earlier, we require all companies to be registered diamond dealers and members of one of the diamond bourses that form the WFDB.
Additionally, companies must appoint a compliance officer with proven experience and have a robust compliance policy in place. Strong references from trusted market players are also essential for all companies being onboarded. By adhering to these stringent requirements, we safeguard our operations and support responsible business practices within the industry.
To what degree do you believe that increased compliance demands on banks from regulators have led to greater awareness in the diamond industry of the importance of conducting their own supply chain due diligence?
PAUL DE WACHTER: Increased regulatory demands on banks, as well as on the diamond industry itself, have significantly raised awareness about the importance of overall due diligence on counterparties, including supply chain. Where in the past requirements were mostly limited to Know Your Customer, we also see a drive towards more diligent Know Your Supplier, including enhanced transparency requirements on mining origin of underlying products.
In our opinion, the awareness of the industry on supply chain due diligence is not only driven by increasing compliance demands, but also by the end-customer, who is more interested in the origin of the product bought, driving traceability initiatives.
We see the industry making significant strides in adopting responsible business practices, driven by the need to comply with regulatory demands and the desire to maintain a reputable standing with the consumers.
Overall, the increased compliance demands have fostered a culture of diligence and responsibility within the diamond industry, promoting ethical practices and enhancing the overall integrity of the supply chain. This heightened awareness has also encouraged companies to implement rigorous due diligence processes within their supply chains, ensuring transparency and accountability at every stage.