ASSOCIATION COLUMN: Scaling twin peaks

Arwa-HamdiehThe United Arab Emirates is moving towards a “twin peak” regulatory model, with the Central Bank to become a prudential regulator and the Securities and

Commodities Authority (SCA) to supervise business conduct. Last year, a draft of new mutual fund regulation was issued that would affect all fund management firms in the country, including those housed in the Dubai International Financial Centre (DIFC).

However, as the industry awaited the new law, the federal government issued a decree to create a new financial centre in Abu Dhabi with a similar independent status as the DIFC. This is the Abu Dhabi World Financial Market, which will have its own regulatory framework, regulator, company registrar and courts.  

The announcement surprised and delighted many firms. It has raised several questions on the fate of the “twin peak” plan. What will be the impact of a fourth regulator on the industry, and how will it affect the relationship with the two onshore regulators, the Central Bank and the SCA?

Having an additional entry point for international firms will add to the set of existing financial centres in the region and could pave the way to a more interconnected market. Such a market could be linked more easily to other international financial markets.

Having this new financial centre might also speed up market integration between the free zones and the onshore industry in the UAE. International firms are in favour of adopting a passporting system for companies based in the free zones, and will continue to advocate that solution.

However, the changing regulatory environment in general poses challenges to asset management firms. They must navigate this transitional phase without having clarity on when and how the transition will be complete.

That said, the transitional phase provides the industry with a rare opportunity to be proactive in shaping the end result. This has been the underlying message of the association since its inception in 2010 and its launch in January 2012. The association continues to advocate that message to the fund management industry, which is positioned to be one of the few areas in the financial services sector to gain from these rapid regulatory developments.

The regulators and government bodies have been receptive to feedback from the industry and welcomed input. This was evident in the association’s first formal engagement with SCA when it co-ordinated the last leg of the consultation phase on the mutual fund regulation. A similar positive reaction was seen by the stock exchanges when the association recently co-ordinated dialogue between them and the custodian community regarding post-trading issues.

Several initiatives are underway to help develop the fund management industry in the UAE, including advocating a Ucits framework for the region and a proposal to develop gratuity and pensions schemes for expatriates through a phased approach.

The mission is not free of challenges, of course. The UAE market does not have a history of trade associations, so developing patience, trust and persistence to achieve regulatory goals despite lengthy and sometimes complex processes among the industry is not easy. Achieving a sense of “trusting the process” will become one of the association’s goals when dealing with firms and the regulators.

As part of the association’s mission to aid the UAE’s efforts in raising standards in industry, the association will assist in training Emirati professionals in policy work, to help develop the professions of public affairs and public policy in the UAE.

Arwa Hamdieh is co-founder of the UAE Financial Services Association

©2013 funds global MENA

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