Setting the Standard

The UAE Vice-President and Prime Minister, and Ruler of Dubai, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, recently issued a decision commissioning Dubai Crown Prince Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum to oversee the development of the Islamic economy to become one of Dubai’s basic tributaries. How do you see the Dubai International Financial Centre (DIFC) and the Dubai Financial Services Authority (DFSA) supporting this initiative?

If there is one area in which I expect innovation and development, it is Islamic finance. I expect Dubai and the UAE to become a major hub for Islamic finance, with more of the world’s sharia-compliant products being launched or administered from here. The first half of 2013 was an exciting time for UAE sukuk issuers and saw a significant increase in the number of sukuk listings on the DFSA’s Official List of Securities. As of the end of July 2013, there were 10 sukuks listed with an aggregate market capitalization of $7.15 billion, of which $3.5 billion was raised during the first half of 2013. They include the UAE’s most prominent companies like the Dubai Electricity and Water Authority (DEWA), Emirates Airline, Dubai Islamic Bank, Sharjah Islamic Bank, and Majid Al Futtaim. Members of the DFSA staff are active in the Islamic Financial Standards Board, which is a leading standard setter, promoting consistency for Islamic finance. We have also designed our regulatory structure to be a “sharia systems regulator” allowing maximum flexibility for Islamic firms or those offering products through an Islamic window. Finally, we have invested much time into aligning our rules and processes with international best practices for offerings and listings. Thanks to these efforts and the excellent work done by NASDAQ Dubai, the DIFC is well established as one of the leading international centers for Islamic finance.

The index compiler Morgan Stanley Capital International (MSCI) recently promoted the UAE to emerging market status. Do you think that this move will further boost investor sentiment for the Gulf economies?

As one of the largest index providers the recent upgrade is important, not least for future liquidity, but is not completely unexpected. UAE exchanges and capital market infrastructure have, in 12 years, reached a level of standards that other emerging markets have yet to reach. In fact, other index providers like the FTSE Group and Russell Investments had already upgraded the UAE to emerging market status in 2010 and 2011, respectively.

In 2013, the DFSA signed its 60th Memorandum of Understanding (MoU) with the European Securities and Markets Authority. How have all your MoUs contributed to more efficient and effective regulatory cooperation and engagement?

Cooperation and information sharing with fellow regulators remains critical in the current environment for the DIFC, and MoUs have proven to be the most effective tool for leveraging regulatory intelligence. The global standard setters, too, have come to appreciate the value of this mechanism, and the DFSA is a signatory to multilateral MoUs initiated by the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS), following a rigorous assessment process. Cooperation and interaction with the DFSA’s federal counterparts and with regulators and supervisors in the region remain a top priority. We have a network of MoUs with the Central Bank of the UAE, the Emirates Securities and Commodities Authority, and the Insurance Authority of the UAE and, as you would expect, we work closely with our colleagues in each of these, in addition to arrangements with our counterparts in Oman, Jordan, Qatar, and Egypt. A continuing increase in activity by authorized firms in the DIFC, and individuals and entities with links to the DIFC, has meant a corresponding increase in requests for assistance to and from fellow regulators. This assistance and these exchanges are made much more efficient and effective by the reliance on MoUs. A real benefit of our MoU network is the ability it gives to our regulated firms to have access to European markets, for example.

In which way has the work of the various standard setters impacted the policies of the DFSA?

The international standard setters play a critical role in drafting and revising best practice, sometimes to avert, but sometimes in response to, crises. The DFSA has a stated goal to develop, administer, and enforce world-class regulations, including playing a part in their formulation. To that end, the DFSA is represented on, and participates in the work of, all three of the main standard-setters: the Basel Committee on Banking Supervision (Basel Committee) for banking regulation; IOSCO for securities and markets regulation; and the IAIS for insurance regulation. The DFSA is also committed to the development of standards for Islamic finance, and in 2012 we were admitted to the Technical Committee of the Islamic Financial Services Board. The policy positions and expectations that flow from the work of the standard setters then feed into the DFSA-administered Laws and Rulebook. For instance, over the past 18 months or so we have seen the Basel III framework and capital adequacy requirements reflected into our rules, and the enhanced corporate governance and remuneration standards of the Basel Committee, IAIS, and IOSCO reflected particularly in our GEN Rules. In addition, recent changes to the Financial Action Task Force Recommendations in relation to Anti-Money Laundering (AML) are reflected in a new AML Module of the Rulebook, and the new IOSCO Principles for Financial Markets Infrastructure are found in the DFSA’s Authorized Market Institutions Regime. There are numerous other examples, and this is an ongoing process. It is important to be compliant with international standards and expectations, as this improves regulatory standards and adds to the credibility and reputation of the DIFC and the firms that choose to be regulated here. However, we are also very mindful to ensure that any change to our regime will be appropriate for the type of jurisdiction we are and our location, along with other considerations such as to ensure that the cost of regulation is in proportion to the benefit.

How do you foresee the regulatory landscape to look like in the UAE in five years’ time?

The DIFC is the vision of its founding President, His Highness Sheikh Mohammed Bin Rashid Al Maktoum. He saw the importance of financial services driving economic activity and growth in creating an effective regulator and strong judiciary as key foundations of an international financial center. His vision and strong support have provided both the blueprint for, and the foundation of, the DIFC’s success today. This vision is endorsed by the Deputy Ruler of Dubai and the current President of the DIFC, His Highness Sheikh Maktoum Bin Mohammed Bin Rashid Al Maktoum. Under his guidance and engaged leadership, the center has become a beacon in the world of financial services and continues to grow and develop; wherever I travel around the world, as I meet senior policy makers and regulators, they are impressed by what has been accomplished. I think we will see an even stronger level of cooperation among regulators in the coming years. The DFSA’s relationships with the UAE federal regulators are excellent, strong, and effective. We all recognize that there are good public policy reasons to have an international financial center within the UAE that offers a distinct jurisdiction, while retaining the federal regulators’ functions in the UAE.

The recently announced Abu Dhabi Global Market (ADGM), the financial free zone in the capital, will create a number of opportunities in the coming years. I expect that this center will be aligned with the DIFC regarding public policy and legislative ideals, and that consensus should strengthen our voices at the federal level and at the tables of the international standard setters. It remains to be seen what sectors the ADGM will seek to develop in the financial services industry, but I look forward to working with them for our mutual benefit. After several rocky years, I believe the world financial markets are settling into a period of greater stability. I do not expect so many of the dramatic regulatory changes that followed the 2008 crisis. Rather, I think this consolidating period will give the UAE’s regulators an opportunity to bring their regimes into line with international best practice and standards in the most appropriate manner.