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.

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QFCRA AND THE FINANCIAL CENTRE OPERATIONS
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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.

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CHALLENGES TO THE QFCRA
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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.

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AML CONTROLS
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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.

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ISLAMIC FINANCE
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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.

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COMPETITION
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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.

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COMMENT
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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