UAE's new monitor watches over financial services
A new agency will have daily oversight of financial services in the biggest shake-up of banking and finance in three decades. The change is part of a new banking law that aims to bolster regulation of the industry and reduce the risk of future banking crises.
"The Government has decided to move to a twin peaks regulation model. It will mean you have two regulators for the financial sector - a prudential regulator and a conduct-of-business regulator," said Mazen Boustany, Head of Banking and Finance at Habib Al Mulla, the law firm advising the Ministry of Finance as sponsor of the law.
Responsibility for conduct of business will move from the Central Bank to a beefed-up Securities and Commodities Association, which will be renamed the Financial Services Authority.
The new authority will have control of consumer protection and the daily business of running the financial system alongside the old association's existing oversight of capital markets. As with the SCA, it will be based in Abu Dhabi and will take on more staff to fulfil its new role.
Its work will dovetail with the Central Bank, which will remain the prudential regulator, taking a birds'-eye view of financial oversight alongside existing control of monetary policy. Plans to overhaul the 1980 banking law were announced by the Central Bank last month, but details of the changes are only now emerging. Officials expect a first draft by the end of the year.
It is the central part of a broader tightening of bank lending practices in response to lessons learnt during the global financial crisis, said Ismail Al Bloushi, chief manager at the general secretariat and legal affairs division of the Central Bank. "Many banks faced trouble and we are addressing that."
Lawyers say the twin regulatory model is based on that of Australia, which weathered the global crisis better than many other countries. "In comparison, if you look at somewhere like the US there's a multiplicity of regulators who are sometimes falling over each other," said Tim Plews, head of financial services in the Middle East at the law firm Clifford Chance.
Unlike the Australian model, however, the Central Bank will still regulate commercial banks for a transition period of at least four years. Regulation of investment banks, insurers and other financial institutions will sit with the new authority. Officials say the FSA will not overlap with the Dubai Financial Services Authority, which governs how financial service companies work in the Dubai International Financial Centre.
But the move to establish the new body signals the Government's desire to bolster financial oversight as Abu Dhabi seeks to build a greater foothold in financial services. The Financial Services Association, a trade body representing banks and other financial service companies, welcomed the move to a regulatory model.
"We look forward to supporting the UAE financial services industry during any transition," said Arwa Hamdieh, the co-founder of the association.