Unlike neighbouring financial centres, the Qatar Financial Centre (QFC) is both a financial and business centre, designed to attract not just international banks and those involved in financial services but also multinational corporates. Just as Qatar represents a different economic and social environment from its neighbours, the QFC represents a different legal framework and a different model designed to facilitate business transactions and provide a familiar international legal and business infrastructure for those doing business in the centre.
The Qatar authorities have moved fast to create a financial centre that reflects the country’s enormous natural resources and wealth and unmatched GDP growth. Significant legislative headway has been made in recent months to enable applications for entry to be considered by May 1 following the publication of core regulations expected in early April. An Emiri decree covering the overall operations of the centre was issued in early March. The QFC represents, in effect, a new legal environment designed specifically for the new type of business that the centre is expected to attract and that has largely not been conducted before out of Qatar. This applies particularly to the project finance and wealth management areas.
Partnership principle
Unlike other centres, the QFC is not seen as a property play and there is no real estate motive behind the project. The centre will initially be housed in a single building that will accommodate the authority, the regulator and the licensed firms. The authorities’ sole interest is in generating business for incumbent institutions. The centre offers companies 100% ownership and full repatriation of profits and is built on the principle of partnership.
The cost structure is such that companies entering will bear very little fixed cost; the centre is built on a ‘no profit – no cost’ philosophy, if the companies do not make money, neither does the state of Qatar. Nominal ‘above the line’ tenancy rents and fees are offered; in this way the centre is incentivised to ensure business is placed through the QFC and that incumbent businesses and banks make a profit.
One fundamentally different aspect of the QFC is taxation. As a clear incentive, the centre offers a three-year tax holiday to entrants, after which the corporate tax rate will be a highly competitive 10%. While this is well below the local corporate tax rates, officials are not concerned as the QFC’s focus is on new business. For example, an international bank that has an existing retail business and is contemplating entry will be able to operate in both the centre and the domestic market. The retail banking business will remain subject to the regulation of the Qatar Central Bank and domestic legislation, while the QFC will be responsible for particular activities held there.
The QFC consists of two primary bodies, as shown in Figure 1. First there is the Qatar Financial Centre Authority (QFCA), whose role is to develop the centre and its commercial strategy. As the administrative and legislative body for the centre, it will report directly to the Council of Ministers or cabinet. Second, there is a fully independent regulator, the Qatar Financial Centre Regulatory Authority (QFCRA), to which Philip Thorpe was recently appointed chairman and chief executive. The regulator will be responsible for creating regulation, accepting applications and monitoring business conduct, and will also report to the Council of Ministers. An arbitration body will be formed to adjudicate on appeals.
Independent regulator
The regulator will be an independent body, with powers to authorise, supervise and investigate regulated firms, operating to the highest international standards. Last year’s regulatory fiasco in Dubai, which led to Mr Thorpe’s sacking, has highlighted the importance of regulatory independence in the Gulf. And his appointment as head of the QFCRA (see interview) further emphasises the critical role of the independent regulator in ensuring the integrity and success of financial centres in the region.
With Mr Thorpe in post, the head of the QFCA to be announced soon and applications opening on May 1, the timetable for development of the new centre is proceeding rapidly. In August, the QFC building in Doha’s prestigious West Bay is expected to be ready for occupation, regulatory recruitment should be completed and the first businesses are due to be operational.
While many banks and multinational firms are keen to examine the details, only one institution has confirmed to The Banker its intention to apply for entry to the QFC. Richard Spilg, group chief executive of London-based private bank Ansbacher & Co, says it intends to apply for a licence in May to support its wealth management initiative. Bought last year by Qatar National Bank, Ansbacher, which has a 110-year history in the City of London, is extremely active in private banking, including the niche area of super-yacht finance. Showing its clear focus on the region, Ansbacher is already located in Dubai, where last December it was the fifth institution to obtain a licence from the Dubai International Financial Centre.
Massive project spend
The QFC, based on high regulatory standards, low cost and minimal bureaucracy, is fast becoming a reality. And the question of whether another financial centre is needed in the region is quickly being answered. Besides becoming one of the wealthiest countries in the world in terms of per capita income in the years ahead, Qatar is expecting to see more than $110bn spent on projects in the next five years.
The wealth flowing into the economy, the project finance needs and related personal needs call for high-quality financial services. Hence establishing a ‘best in class’ regulatory and business environment seems essential if Qatar is to make the most out of its resources and ambitions. When its unique wealth and financial needs are assessed, it makes sense to develop an international standard financial centre at home, rather than allow other financial centres to reap the rewards.
