Strong Perimeter

In December 2012, a new law was implemented that led to the Qatar Central Bank (QCB) taking on a supervisory and regulatory role for insurance companies. Do you feel that such a change will lead to increased insurance penetration in Qatar, where the levels are currently some of the lowest in the world?

As the overall economy continues to expand, Qatar’s insurance sector is likely to register strong growth in the coming years. You would appreciate that besides being a high-income country, there are a number of reasons for the low insurance penetration rates in Qatar, including the State’s comprehensive social security system that provides for pensions and other support services through the General Retirement and Social Insurance Authority. Another factor contributing to the low penetration in the non-life sector is that compulsory insurance in most segments is not mandated by law. This is all set to change soon with the recent announcement of the broadening of the compulsory insurance pool in the health sector. Moreover, the QCB would frame a comprehensive set of insurance regulations that are in line with international best practices. Efforts are underway to develop an effective and harmonized authorization and supervision framework for insurance firms. In this regard, we would lay greater emphasis on governance, prudential standards, group supervision, and macro prudential surveillance. All these factors would contribute toward the healthy growth of the insurance sector in Qatar.

The same law also calls for provisions relating to the conduct of financial business in Qatar with regards to consumer protection and client confidentiality. How do you intend to implement these reforms?

We would develop a coordinated approach among the three regulatory authorities to ensure that financial services firms are transparent with their customers. Such firms should understand the needs of their customers and put in place adequate systems that avoid disputes. In this regard, the dispute resolution mechanism has to be timely and conclusive. Furthermore, consumers have to be safeguarded from unauthorized and unlicensed illegal financial service providers through stricter enforcement of the law. In view of this, the regulatory perimeter for financial services operating in Qatar needs to be drawn, outlining those financial services that can only be provided by financial institutions licensed in Qatar. Moreover, we need to frame regulations for financial institutions relating to consumer protection. For maintaining client confidentiality, it is necessary to strengthen the existing rules protecting customer information and specify the circumstances when confidential information held by financial institutions could be disclosed.

The Financial Stability and Risk and Control Committee (FSRCC) was recently formed with the mandate of ensuring financial stability. What strategies led to the formation of this committee, and how it is expected to work in practice?

The new QCB law lays greater emphasis on the macro prudential framework in Qatar and it is from this perspective that the law has established the FSRCC. The FSRCC will minimize the regulatory overlap and plug the gaps through coordinated action from the three regulators. The FSRCC is chaired by the Governor of the QCB and includes the Deputy Governor and the Chief Executive Officers of the QFMA and the QFC Regulatory Authority. The FSRCC is responsible for: identifying and assessing risks to the financial sector and markets and recommending solutions to manage and mitigate such risks; coordinating the work of the financial regulatory authorities in the state; and proposing policies related to regulation, control, and supervision of financial services, businesses, and markets. For its regular functioning, the FSRCC would draw resources from the three regulatory agencies. The decisions of the FSRCC will be implemented by each regulator within their own regulatory ambit and jurisdiction.

There has been talk about Qatar changing its currency peg away the US dollar. What preconditions would need to be met before such a change takes place, and how would a deviation from the status quo benefit Qatar?

As I have repeated many times before, Qatar’s decision to keep its exchange rate pegged to the US dollar is based on key considerations that encompass the current economic realities of the country. With our emphasis on greater economic diversification, we aspire to develop the non- hydrocarbon sector over a period of time so as to reduce our reliance on the hydrocarbon sector in future. Moreover, our financial markets would have to deepen and develop further in order to provide the appropriate instruments for the hedging of risk in a more flexible exchange rate environment.

What role does the development of Qatar’s financial infrastructure play in achieving the goals of the Qatar National Vision 2030?

The National Development Strategy introduced by the government constitutes the main pillar of our development approach in realizing the goals of the Qatar National Vision 2030. At the core of this strategy is to develop a diversified and more resilient economy, in which the financial sector will have a predominant role. As a part of this initiative, we have already made significant progress in developing the financial markets and related infrastructure. Illustratively, major initiatives have already been taken to develop a deep and liquid debt market through regular issuance of treasury bills and government-dated securities. This would lead to the development of a risk-free yield curve that would facilitate the pricing of new financial market instruments. Moreover, the three regulatory agencies are working together to harmonize and strengthen regulatory oversight of Qatar’s payment and settlement systems infrastructure, in line with international standards and practices. In this regard, the objective is to gradually integrate QFC firms, which are hitherto outside the domestic payments and settlement system, into the national mainstream. Furthermore, in view of the new QCB law, we are also strengthening our legal and regulatory framework in order to safeguard consumer protection.

Moving forward, what is your outlook for Qatar’s financial sector in the medium term?

Qatar’s financial sector outlook remains buoyant given the strong macroeconomic fundamentals of the country and continued government support to the financial sector. The country enjoys a strong credit rating and has a very favorable tax regime. The faith of the international community in the economy is reflected by the fact that recent issuances of sovereign bonds were over-subscribed by a wide margin. Cumulatively, these factors have resulted in the country enjoying a high level of international investor confidence. As mentioned before, we are focusing on the financial sector to play a bigger role in developing a more diversified economy over the medium term. Being a predominantly bank-based financial system, this has entailed strengthening the banking sector through various measures. Accordingly, policies are being attuned to international best practices, while meeting the requirements of the financial sector. Moreover, we have adopted a coordinated strategy whereby the three regulatory agencies, i.e., the QCB, the QFMA, and the QFCRA, would harmonize regulatory and supervisory standards in Qatar across different jurisdictions. As the apex body and the supreme competent authority for the entire financial sector, the challenge for the QCB is how best to achieve this transition in a non-disruptive manner, while taking cognizance of the views of all stakeholders.

© The Business Year – September 2013