Standard Chartered’s decision to close majority of its small and medium enterprise (SME) accounts in the UAE has irked the country’s central bank, who has threatened the bank with legal action.

Recently, StanChart agreed to pay $300m in fine to New York Department of Financial Services (NYDFS) for failing to improve its money-laundering controls.

The bank also agreed to close some accounts as part of the agreement with NYDFS, following revelations that majority of money laundering originated from its branches in the UAE and its Hong Kong subsidiary.

In an e-mail statement, the UAE central bank warned the London-based lender that it may face litigation from thousands of its customers in the Gulf country, because of the material and moral damage, resulting from account closures.

The central bank estimates that nearly 1,400 to 8,000 accounts could be affected.

NYDFS has ordered the British bank to dispose of or shut down the accounts of its small business clients in the UAE within 90 days.

StanChart has already begun negotiations with local banks to offload its portfolio of SME clients in the UAE and if it fails to divest the business within the 90-day deadline, it will shut the accounts.

The UAE’s warning follows the Hong Kong Monetary Authority’s (HKMA) reaction to a ban on StanChart’s ability to clear US dollar payments for some clients in Hong Kong by defending its own "robust" anti-money laundering regime, as reported by The Financial Times.