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New regulation on track

Legislation for a new unified regulatory authority is expected to be passed before the year’s end and the Qatar Financial Centre is working to bring in more new players, writes Nadine Marroushi.
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Ever since the Qatar Financial Centre (QFC) was created, the need for world-class regulation has been high on the agenda and further evolution is in the works. Since announcing last July that Qatar’s financial regulatory authorities would be merged, there has been some progress in the single, as yet unnamed, new body’s establishment. Legislation to set up the new regulator now awaits only parliamentary approval.

The new, unified regulator will consist of Qatar Central Bank’s banking supervision department and the regulators of Doha Securities Market and the QFC, which has attracted 83 firms since its inception in 2005.

“A lot of research has been done on existing systems, looking at the complexities of achieving a merger and determining what the new standards will be for the new regulator, ” Qatar Financial Centre Regulatory Authority (QFCRA) chairman Philip Thorpe tells The Banker. “We’re expecting, during the course of the next month or two, more concrete steps to emerge in the appointment of a board and progress with primary legislation.”

Because the government breaks for the summer and Islam’s holy month of Ramadan is in September, approval for the legislation will not be given before the end of the last quarter.

Watchdog model

The new regulatory body is being modelled on the UK’s financial services watchdog, the Financial Services Authority (FSA), of which Mr Thorpe was a managing director. “The FSA took about three years to set up and we hope it will move quicker in Qatar,” says Mr Thorpe.

The decision to unify the regulatory bodies resulted from a number of practical considerations. “Although Qatar’s economy is large, it is a small country. And the idea of having three or four regulators is extravagant – regulatory resources are expensive and hard to come by – so it made a lot of sense to put in place a single regulator,” says Mr Thorpe. “The new body fits into Qatar’s objective of moving the whole economy into a framework of international standards.”

New rules

 

As a new rule book comes into play, domestic institutions will have to meet tighter regulations. According to Mr Thorpe: “One of the biggest changes will be to become a more risk and principles-based regulator, rather than the existing, more rules-dominated structure.”

Once the single regulator gets under way, domestic institutions will be given a two-to-three-year transition period and the response has, apparently, been positive. “One of the trends we’ve noticed is that many domestic institutions are harbouring aspirations to operate across borders and they have recognised they will be best served if they have a strong regulatory structure behind them,” says Mr Thorpe.

According to QFC chief executive officer Stuart Pearce: “Banks that apply for a licence under the QFCRA have done so specifically to show to other regulators that they are regulated to international standards.” The QFCRA has also recently amended its anti-money laundering rules to ensure tighter security, particularly with regard to transactions in any branch or subsidiary of a QFC entity when operating in another jurisdiction.

Standing out

 

When the QFC was set up in 2005, there was a lot of talk about Qatar’s ability to match its neighbouring competitors in Dubai and Bahrain. But, both Mr Thorpe and Mr Pearce remain bullish about the gas-rich ­country’s distinguishing role. “The QFC is for the benefit of Qatar; it is not trying to turn financial services into a tourist attraction,” says Mr Thorpe. “The growth of the financial services infrastructure is part of the necessary fabric to support Qatar’s economic growth, which will be the second largest in the region in the next three to four years.”

Unlike Dubai, the QFC is not an offshore hub. This means that companies with a QFC licence can do business with institutions and individuals in the country. “There are also no restrictions for dealing in the riyal currency and no restriction in terms of doing business in insurance, unlike [in] Dubai,” Mr Pearce tells The Banker. The only business the QFC does not license is retail banking because “there are enough retail banks”.

Another plus point for Qatar is that there is only one set of legal arrangements for banks to follow – unlike in Dubai, which is a federal state of the UAE, both of which have their own laws. The QFC wants to attract more Islamic and conventional insurers and asset managers, and is working on an initiative to do this, says Mr Pearce.

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