This ambition is reflected in everything from Dubai’s breathtaking modernistic architecture and multi-billion dollar real estate developments to its leaders’ huge investments in horse racing and soon motorsport. To make the DIFC work as a hub for investment bankers and other specialised financiers, the centre was always going to have to be judged on the superior levels of governance it could achieve, as well as its architectural glitz. This is what gave such apparent importance to the dismissal, in June, of the project’s two senior expatriate regulators – who had been appointed to advise on governance practices in the Emirates.
PR fiasco
Privately, senior financiers close to this hugely ambitious project agree that the dismissals of Ian Hay Davison and Stuart Thorpe from the DIFC’s regulatory body, the Dubai Financial Services Authority (DFSA), was a PR fiasco. The dismissals followed the City of London stalwarts’ questioning of the award of real estate and construction contracts to groups linked to senior officials. There is no suggestion of impropriety on behalf of the officials, only that their actions gave the wrong perception. There may also have been disagreements over the regulatory council’s independence.
The scrutiny and criticism of contracts had gone down badly in a Gulf culture whose views on transparency and disclosure are often very different from those in the western jurisdictions the DIFC hopes eventually to rival.
UAE bankers believe the episode will not do irreparable damage to the DIFC project. With the moving force behind the “Dubai miracle” – Crown Prince Sheikh Mohammed bin Rashid al-Maktoum – personally intervening to lead the damage limitation exercise, one month after the dismissals, there were even suggestions that this particular cloud could yet reveal a silver lining.
The project is going ahead and most potential participants – the 40-plus banks that have expressed an interest in joining the DIFC – are still expected to come in. Sheikh Mohammed met with the DFSA’s regulatory council a few days after the dismissals and has guaranteed the DIFC’s independence – a personal commitment that counts for a lot in the Gulf.
On July 6 came the confidence-boosting news that UAE President Sheikh Zayed bin Sultan al-Nahyan had flown back from his traditional summer retreat in Geneva to sign Federal Decree No 35 of 2004, thus providing the federal endorsement DIFC needs to operate. DIFC chief executive Naser Nabulsi said all that remained was a government of Dubai decree to formalise executive bodies managing and regulating the centre.
Yet more good news emerged with the announcement that DIFC, along with Dow Jones Indexes and Dubai-based investment bank Shuaa Capital, was launching the Dow Jones DIFC Arabia Titans 50 Index, a regional blue-chip index that covers companies in Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the UAE. In typical Dubai fashion, more good news is likely to follow.
Questions of perception
The fuss about the regulators affair depends on whether the episode is viewed from an Anglo-Saxon or a Gulf perspective. “The thing is, you don’t understand how we think and we don’t understand how you think,” says one senior Gulf financier.
After his dismissal, reportedly by mobile phone when he was holidaying in France, Mr Hay Davison said he and Mr Thorpe had been dismissed because DIFC chairman Anis al-Jallaf did not like their advice. Mr Al-Jallaf later said the dismissals were justified because both former regulators had indulged in “irrelevant details” that had slowed the pace of work.
Since the dismissals, events have moved on at speed, with a number of confidence-boosting announcements. Local observers believe perhaps the biggest benefit from the affair is that it has secured the personal involvement of Sheikh Mohammed, who will have no truck with anyone who compromises his personal guarantee of the DIFC’s independence. This is to be welcomed in the Gulf context, but may still need selling to global institutions planning their investment banking strategies in a global context.
