QATAR FINANCIAL CENTRE: SOLID REGULATIONS,

UNCLAS SECTION 01 OF 02 DOHA 000135 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON EFIN QA KTFN SUBJECT: QATAR FINANCIAL CENTRE: SOLID REGULATIONS, MODERATE GROWTH REF: A. 05 DOHA 880 ¶B. 06 DOHA 480 ¶1. Summary. On 28 January Qatar Financial Centre (QFC) regulatory officials told EmbOffs that the Authority has licensed 17 financial services firms and focuses on corporate governance as the primary risk in evaluating applications. The Authority, which regulates the QFC as a sort of financial free zone within Qatar, has substantial independence from the government and plans to be self-sufficient financially. Officials plan to regulate Islamic finance but don't see the QFC as a major hub for it. End Summary. -------------- QFCRA AND THE FINANCIAL CENTRE OPERATIONS -------------- ¶2. (U) On 28 January visitors from Treasury's Office of the Comptroller of the Currency and Embassy EconOffs met with Qatar Financial Centre Regulatory Authority (QFCRA) senior management to discuss the development of the Qatar Financial Centre (QFC) and the QFCRA's role in managing the risks of operating in the region. The financial centre has been open since 2005 (ref A) and currently has 33 companies licensed for operation, 17 of which are financial service firms. The other companies in the QFC are businesses related to financial services such as law and accounting firms. While they are also licensed to operate within the financial centre, they are not regulated by QFCRA. ¶3. (SBU) According to QFCRA officials, the Qatar Financial Centre is different from other regional financial free zones because the Qatari government has allowed the operators considerably more freedom in country. The QFC can create its own laws, labor and immigration rules (including visa sponsorship) and has limited direct financial oversight from the government. Currently, the financial centre receives its budget directly from the Council of Ministers and reports to them annually. QFCRA officials stated that the centre plans to be fully independent in the coming years with revenue generated from the fees collected from businesses operating in centre. QFCRA officials stated the Qatari government has given them a strong financial commitment for the future but should funding be interrupted the QFC could maintain operations for "quite a while." Firms are also not limited to just offices in the QFC building; eventually other areas will also be designated as financial free zones where firms can locate. ¶4. (U) While the former Minister of Economy and Commerce (ref B) was the initial driver behind establishing the QFC, the centre enjoys strong support from the Finance Minister and acting Minister of Economy and Commerce, Yousef Kamal, who watches the purse strings in Qatar. QFCRA officials stated that they believe the former Minister got the idea started as a way to attract top foreign financial companies to work in Qatar without opening the domestic banking sector to foreign investment. Most of the firms were involved in project finance when QFC first opened, but more are moving into investment/asset management and developing capital market products. Insurance services are emerging as another key offering of QFC firms and the QFCRA aims to license companies to offer retail insurance in Q2/Q3 this year. At this time the QFCRA does not allow retail banking. -------------- CHALLENGES TO THE QFCRA -------------- ¶5. (SBU) The QFCRA does a risk assessment for each individual institution it licenses. For firms that it deems high-risk, they are developing a close and continuous relationship to help bring the firms up to their standards. Corporate governance is their primary risk concern so they focus more on structure and oversight standards for licensing firms. All firms are required to report annually to the QFC Board on money laundering as well. When asked about potential downfalls in energy prices effect on their operations, QFCRA officials seem very positive about their future growth prospects. They told EmbOffs that the Qatari government is doing a good job spending their current wealth, has active plans to sustain it for future generations, and are even looking at scenario models to help plan for unforeseen occurrences. -------------- AML CONTROLS -------------- ¶6. (SBU) The QFCRA officials say they have a good working relationship with the Qatar Central Bank; they are not in competition and often share information. They met with the Qatar Financial Intelligence Unit (FIU) early in their DOHA 00000135 002.2 OF 002 operational development to synchronize their efforts against money laundering. When suspicious cases do arise for firms within the QFC, the firm reports directly to the FIU and the QFCRA is informed. The QFCRA has its own set of anti-money laundering laws which are based off of the Central Bank's with more detail. The QFCRA also has a formal information sharing relationship with the Federal Reserve. -------------- ISLAMIC FINANCE -------------- 7 (SBU) QFCRA officials cite transparency as their major challenge in regulating Islamic finance services. Islamic banks are licensed according to the same criteria as other banks, including corporate governance. The QFCRA does not have its own sharia' board and makes it the firms' responsibility to ensure that their offered services are sharia' compliant. QFCRA officials highlighted that they have a disclosure-based system to regulate Islamic finance. All firms offering any facet of Islamic banking are required to report the identity of the sharia' board members, what products they are authorizing, do the necessary financial accounting and submit to a QFCRA audit. QFCRA wants to integrate Islamic banking into the QFC without having to take a position on the fatwas issued by various sharia' boards in the Islamic banking community. Officials highlighted the lack of consistency with fatwas a primary reason for the QFCRA to leave the actual operation of Islamic finance to the licensed firms. -------------- COMPETITION -------------- ¶8. (SBU) All QFC officials were adamant that Qatar is not in competition with Dubai or Bahrain for business and preeminence. They told EmbOffs that while some countries were starting financial centres without a well-defined plan, they believed that Qatar carefully thought out the process of what was needed for the country and how to best set up the centre. They view the Dubai International Financial Center as focused more on its own securities exchange (DIFX) and Bahrain as the Islamic finance hub. They said that in this economic environment there are more than enough opportunities for financial services, particularly as Arab investors want to keep more of their money within the region. They also stated that Qatar is not experiencing some of the restrictions found elsewhere because the country's political power structure is more centralized and the leadership is more open to inviting foreign development. -------------- COMMENT -------------- ¶9. (SBU) After two years of operation the QFC appears to be off to a good start. There is a long way to go with only 33 licensed companies, but some major players are trickling in, including Citibank. The regulatory framework looks solid with the QFCRA trying to be as transparent as possible and welcoming information sharing with Washington. End Comment. RATNEY