Qatar is set to further enhance financial markets regulation by developing a consistent risk-based regulatory framework. Governor H.E. Abdulla bin Saoud al Thani has announced a three-year strategic plan, which was jointly drafted by the Qatar Central Bank, the Qatar Financial Markets Authority and the Qatar Financial Centre Regulatory Authority.
The goals of this plan include:
• Strengthening the financial market infrastructure
• Enhancing consumer and investor protection
• Promoting regulatory cooperation
• Building human capital
The Islamic financial services industry in Qatar is expected to benefit from the development of an enhanced risk-based regulatory framework by:
• Creating consistent regulations for Islamic finance. With the recent closing of Islamic windows of conventional banks operating in Qatar, a risk-based regulatory approach helps to develop a level playing field in the form of consistent regulations for Islamic finance. These regulations should be aligned with the regulation of conventional financing to the extent consistent with Shari’ah requirements.
• Strengthening the financial market infrastructure. With international prudential standards aligned to the core principles and standards adopted by the Basel Committee, the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO), Qatar could minimise the opportunity for regulatory arbitrage arising from cross-sectoral and cross-border differences. The financial market infrastructure could further be strengthened by ensuring the regulatory requirements distinct for Islamic finance are effectively addressed.
• Improving compliance systems and controls. Rather than focussing on regulating the religious features of Islamic products, a risk-based regulatory framework typically focus on the adequacy of the systems and controls that firms maintain for all their compliance obligations, be they conventional or Shari’ah compliant.
• Developing greater public confidence in Islamic financial services. Enhancing governance requirements for Islamic finance institutions should assist in developing greater public confidence in the Islamic financial services industry and allow investors a clear and enforceable measure against which to assess performance. For example, enhancing governance would ensure that suitably qualified scholars are represented on Shari’ah Supervisory Boards. These boards would then operate under approved policies and procedures and have in place systems to disseminate their rulings.
• Improving the efficiency of the supervisory processes. Information-sharing and effective coordination among regulators will enable a complete understanding of the entire risk spectrum of the risk taking activities undertaken by Islamic financial institutions operating both within and outside of Qatar. This should improve the efficiency of supervisory processes and allow for early detection and management of cross-border transmission of risks arising from group-wide activities. The resulting public confidence should facilitate growth in the Islamic financial services industry in Qatar.
• Creating an Islamic economy of scale. Globally, Islamic finance standards lack enforcement and standardization which impacts market confidence. A strong, standardised and transparent regulatory framework would help create economies of scale in the Islamic financial services industry. Qatar would be well placed to drive this growth both within Qatar and in the wider GCC and MENA region.