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9 December 2014

World Business Times is a leading global provider of business intelligence and insight

4 QATAR

THE banking system in Qatar is subject to

two quite separate sources of stress. The

first is generated internally and is caused

by the rapid pace of development within

the country. Fast growth means expanding

balance sheets and this can mean banks

coping with stresses of their own. From

vastly increased business volumes with the

same numbers of staff through to banks

engaging in new lines of business with which

some of their staff might be unfamiliar.

The second source of stress is generated

externally and stems from the requirements

that banks need to reassess their capital bases

in the light of the newBasel III requirements.

In Qatar, ultimately, the central bank is the

party charged with making sure that nothing

goes off the rails.

Qatar Central Bank’s governor since

2006 has been Sheikh Abdulla Bin Saoud

Al-Thani (

pictured

), who started his career

in the bank in 1981. Al-Thani has also been

chairman of both

the Qatar Financial

Centre

Regulatory

Authority and chairman of Qatar

Financial Markets Authority since

2012. Al-Thani is also managing director of

the Qatar Investment Authority.

In December 2013 the QCB, QFCRA

and QFMA jointly launched a strategic plan

for the future of financial sector regulation

in Qatar. The financial sector as a whole

has a crucial role to play in realising the

goals of the Qatar National Vision 2030

and the strategic plan itself contains six

goals, each of which is supported by

specific strategies and work plans within

the QCB, QFCRA and QFMA. The goals

include enhancing regulation by developing

a consistent risk-based micro-prudential

framework, expanding macro-prudential

oversight, strengthening financial market

infrastructure, enhancing consumer and

investor protection, promoting regulatory

cooperation and building human capital.

Matters at home are doubtless more

predictable but still involve a lot of oversight.

What is QCB’s strategy for

ensuring that all regulated banks

in Qatar are Basel III compliant?

The Basel III Capital Adequacy was issued

to conventional banks and Islamic banks

separately in January 2014. Banks have

been advised to report on a quarterly basis,

both on a solo and consolidated basis. These

submissions are required to be audited by the

bank’s external auditor prior to submission

to QCB… the capital adequacy reports are

scrutinised to ensure that the banks have

followed the correct intent of the circular.

As regards, Liquidity Coverage Ratio, a

circular was issued to banks in January 2014

and amended in May 2014 to incorporate the

changes effected by the Basel Committee

on Banking Supervision. The circular on

Leverage Ratio was issued in July 2014

and implementation started with effect from

September 2014 as per the finalised BCBS

document issued in January 2014. All these

submissions are to be audited or reviewed

by the external auditors of the banks prior to

submission to QCB.

Do you expect to see an increase

in the number and size of hybrids

issued in the market?

As of now, two banks have issued additional

Tier 1 instruments compliant with the

eligibility criteria stated in the Basel III

Capital Adequacy circulars. As regards other

banks going in for such instruments, it is left

to the bank’s analysis and policy of their

projections of business plans and capital

planning. However, when a bank intends to

issue such instruments, banks are required to

seek prior approval from QCB.

Does QCB have any plans to help

develop short-term liquidity

instruments for Islamic banks in

Qatar?

QCB has recognised the International

Islamic Liquidity Management Sukuk

as one of the high quality liquid assets in

Level 2A as short-term instruments to help

Islamic banks in complying with the LCR.

In addition to the IILM Sukuk, QCB also

recognises Islamic Sukuk issued by any

other international organisation. Further,

there are certain sovereign Sukuk issued

in Qatar which will be eligible as liquidity

instruments for Islamic banks.

QCB has successfully issued

Sukuk in the past. Do you foresee

the need to do so again in the

near future?

The QCB has held quarterly auctions of

government bonds, both conventional and

Sukuk, since March 2013. The type of bonds

and the auction volume to be issued in the

future depends on liquidity conditions as

well as the stance of monetary policy at that

time.

What were some of the issues

you faced in drawing up your

strategic plan for regulation of

the finance sector — bearing in

mind how fast the economy is

growing?

QCB’s Strategic Plan 2013-2016 has

been developed in line with the National

Development Strategy 2011-16 to realise

the goals of Qatar’s National Vision

2030. The Strategic Plan provides the

mission, vision, values and objectives

that underpin a coordinated approach

to strengthen the financial sector and

foster stable and robust economic

growth. At the core of this strategy is the

development of a diversified and more

resilient economy – which will have lesser

reliance on hydrocarbon revenues – in which

the financial sector will have a predominant

role. In achieving the goals of the Strategic

Plan, the financial regulatory infrastructure

will meet international standards and

best practices with the objective to

provide a conducive and investor friendly

environment.

In addition to building a robust banking

sector to support the economic growth and

diversification goals, QCB is leading the

coordination efforts with Qatar Financial

Markets Authority and Qatar Financial

Centre Regulatory Authority to provide a

stable financial environment to a broad range

of businesses. In this context, the Financial

Stability and Risk Control Committee was

established in 2013 to facilitate regulatory

coordination and augment management

of systemic risk. As envisaged in the

Strategic Plan for Financial Regulation and

conforming to international standards, QCB

has been moving to risk-based regulation,

expanding macro-prudential oversight,

enhancing transparency, strengthening

market infrastructure, and improving

consumer and investor protection.

Progress achieved to date includes a

wider QCB’s financial regulatory agenda

together with the upgrades to emerging

market status by leading rating agencies, the

increase in foreign investors ownership to up

to 49 per cent for listed Qatari companies,

and more recently, the establishment of Qatar

as the first regional renminbi clearing centre;

all of which have opened up the financial

market as part of an important step to

develop the financial industry domestically

and internationally.

Maintaining a world-class regulatory environment for the financial services sector of one of the wealthiest

nations on earth is no small task. In an exclusive interview Qatar Central Bank’s governor Sheikh Abdulla

Bin Saoud Al-Thani tells Paul McNamara how it’s done.

The map of Qatar’s financial services industry has

recently been redrawn, but this probably means more

rather than less opportunity for global financial firms.

Paul McNamara reports

Finessing

the financial system

BEFORE

2004,

western

finance

companies wishing to transact business in

the Gulf would send in suitcase bankers

from London and Geneva to service their

wealth management and project finance

clients. An intrepid bunch opened offices

in Manama, Bahrain, which, for a time,

declared itself the financial capital of

the region. However it was not until the

DIFC opened in Dubai in 2004, allowing

foreign finance houses to set up wholly

owned subsidiaries, that the financial

service sector in the region took off. The

Qatar Financial Centre was not far behind,

opening in 2005.

QFC was established as an onshore

financial free zone rather than an offshore

financial centre and the idea was to bring

a different focus to the financial service

arena to that which was offered by DIFC.

Accordingly both reinsurance and asset

management were the initial areas of focus.

Much has changed since those early days

and Qatar Financial Centre Regulatory

Authority, CEO, Michael Ryan says,

“We had new laws come out covering the

Qatar Central Bank that became effective

1 February 2013 and that brought in

some fairly fundamental changes to the

things we do and how we do them. The

premise is that all three regulators, QCB,

Qatar Financial Markets Authority and

ourselves, remain independent, hence we

continue to have overall responsibility for

licensing and supervision of entities within

the QFC.”

It is a fact of life that the world

of banking and insurance changed

dramatically after the global financial

crisis and Qatar has adopted a regulatory

approach that is fairly formulaic but robust

for all that. Ryan says, “The other thing the

new law did was establish the Financial

Stability and Risk Control Committee.

This is a formal mechanism to ensure

cooperation across all three regulators

on areas of common concern; regulatory

policy, regulatory action, supervision and

the like. The committee is responsible for

reviewing risks to financial stability but it

extends beyond that to ensure that there is

effective coordination between all three

regulators. Further to that the committee

also ensures that there is consistency in

regulatory policy.”

In the past the QCB’s role had been

largely domestic and QFCRA’s role was

limited to firms within the QFC, but

even so, there would inevitably have

been areas of overlap. Ryan says, “QCB

is now responsible for insurance in the

state. Both QCB and QFCRA are

working very closely to try to develop

a framework because QFCRA also

regulates QFC insurance companies and

we ensure that there is an appropriate

level of consistency in the approaches

taken by the two. What we do at QFCRA

is build a regulatory environment for firms

that want to come and take advantage of

the growth environment of the Qatari

market. They can come here and build

their relationships with Qatar and the

Qatar economy. They will be working in

the same kind of environment that has

enabled them to build their businesses in

other jurisdictions.”

Building up the capital markets in

Qatar features heavily in the new strategy.

It is built around a number of very

specific themes such as building market

infrastructure, ensuring greater resilience

in the payments system, regulatory

coordination on a local and international

level, consumer and investor protection,

keeping pace with the development of

international regulation on the micro

level and maintaining a strong macro

view across all three of the regulators

with regard to current risks in the system

and potential points of weakness. “The

strategy is very ambitious and very broad

and very specific about the things we

intend to do,” says Ryan.

Three into

one does go