Abdulla Mohammed Al Awar, CEO, Dubai International Financial Centre Authority, DIFC
Abdulla Mohammed Al Awar takes a detailed look at the inter-linked responsibilities of the DIFC, DFSA and DIFC Courts.
In a fast-changing global environment, the Dubai International Financial Centre (DIFC) has confirmed its status as an important jurisdiction. The DIFC was established to provide the MENASA (Middle East, North Africa and South Asia) region with a gateway to facilitate inward and outward flows of global capital and investment. Its success has largely been due to its solid infrastructure, internationally recognised regulatory environment and strong regional relationships. DIFC has already achieved global recognition as an independent international financial centre, providing a fully transparent operating environment upheld by a world-class regulatory and legal framework. It is the leading and fastest growing financial centre in the Middle East supporting regional growth, not just the growth of Dubai itself.
The City of London’s Global Financial Centres Index (GFCI) has charted the growing importance of Dubai, and has identified it as the leading financial centre in the region between Europe and Asia, the 23rd most important international financial centre overall, and the number one financial centre set to become more significant in the next two to three years. Indeed DIFC recently conducted its own study and commissioned KPMG in the United Arab Emirates (UAE) to independently assess the Report. The Report highlights the progress made by Dubai in establishing itself as a leading international financial centre. This study was conducted with the objective of benchmarking DIFC's and Dubai's ‘competitiveness’ against that of other leading financial centres around the world and the region. One of the notable aspects of the Report is the evaluation of DIFC as a separate financial centre with individual competencies.
DIFC was ranked seventh in the Report on the strength of its world-class legal and regulatory standards; independent regulator and judiciary system; and strong value offering for financial businesses. In addition, DIFC’s infrastructure and business environment, custom-designed for the financial industry, made it a more attractive jurisdiction for many institutions that other more established centres.
The DIFC has just reached its milestone fifth anniversary, and its incredible achievements during such a relatively short period of time have ensured that is has already established itself as a world-class onshore financial district with more than 850 companies, including leading firms from across the region and the globe, licensed to do business from the Centre. DIFC’s strategic location helps bridge the time gap between the financial centres of London and Hong Kong, and serves a vast region stretching from central Asia and the Indian subcontinent to north and east Africa.
The primary sectors of focus for DIFC include:
The financial services industry across the globe is in a period of transition.
The industry’s landscape is changing as new areas of wealth arise, particularly in Asia and the Middle East, and new jurisdictions are emerging as part of these changes. There is an acknowledged eastward shift in the global economic centre of gravity, and this shift places Dubai increasingly at the heart of this new geography.
The DIFC operates within one of the fastest growing regions of the world, and its location provides a natural advantage. While the West and the Far East have more than a few established financial centres catering to those markets, the MENASA region currently do not have truly mature international financial centres to form the vital link between the East and the West. DIFC is uniquely positioned to bridge that gap. It has established a recognised and credible track record of regulation and has sought to build international confidence through its world-class, independent financial services regulator the Dubai Financial Services Authority (DFSA), and in the regulatory standards that it administers. The success of the DIFC in attracting top quality financial firms to the Centre has, in part, depended upon the visible presence of efficient, modern and independent regulation and a world-class judicial system.
As the world’s financial architecture undergoes fundamental change and realignment, the DIFC is poised to remain as a major global player and a strong and vibrant financial centre over the coming years.
The Dubai Financial Services Authority (DFSA)
In fulfilling its mandate as the sole independent financial services regulator for the DIFC, DFSA performs a number of functions:
The DFSA’s stated approach is: “To be a risk-based regulator and to avoid unnecessary regulatory burden.” The belief is that regulation should be directed to the mitigation of risks that would otherwise be unacceptable. In addition, the compliance obligations should be proportionate to the mitigation of those risks within a framework that enables regulated entities to effectively and efficiently meet their compliance obligations.
Under this model, the DFSA sets priorities for the use of all resources and has adopted a continuous risk management cycle which identifies, assesses, prioritises and mitigates unacceptable risks to our regulatory objectives or a particular sector of our financial services industry. The DFSA recognises that these risks may arise from within or outside the DIFC so regular monitoring of regional and international financial markets and trends is undertaken. This systematic assessment of risk allows for the identification of common issues across the regulated community and affords the chance to undertake the necessary thematic work in response.
The DFSA’s risk-based philosophy applies to all internal Divisions and Departments and to all dealings with regulated entities. This focus on outcomes rather than the way they should be achieved results in more effective and efficient risk-based regulation.
The DFSA believes that it is appropriate to clearly and regularly state its approach to regulation to ensure it is clearly understood by all external and internal stakeholders. This approach to regulation, together with the DFSA’s vision, mission and values, form the foundation upon which the work is carried out.
Among the core focus’s of the DFSA is to protect market participants, provide a level playing field and maintain confidence and integrity in the market. Having a sound regulatory framework aligned to international best practice, with the most relevant regulatory policy from other jurisdictions incorporated, has enabled the DFSA to evolve into a well functioning and responsive regulator.
Today, the DFSA is supervising more than 320 entities in the DIFC. Effective supervision and control of risk is handled by a team of internationally respected regulators with an average of 15 years regulatory and compliance experience per Executive. So as to ensure proper conduct of business oversight and detection of business trends and risks impacting the Centre, many initiatives have begun and improvements been made to ensure that the DFSA’s risk-based regulation can respond in a way best suited to changing circumstances. An example of this was the establishment of a Special Surveillance Unit in 2009 to capture, understand and respond better to regulatory risks. This work is especially important during times of financial turmoil as the nature of business and risk changes.
Over the years, a number of policy programmes have been implemented by the DFSA, including new rules to open the DIFC to retail clients; overhauling funds management rules; introducing new prudential requirements for Islamic finance products; and further strengthening the anti-money laundering regime. Some of these initiatives were deregulatory in nature while others imposed additional compliance requirements. All of these reflect the DFSA’s policy commitment to the careful assessment of risk and the implementation of effective and proportionate regulatory responses.
As part of the DFSA’s response to the global financial crisis, and to reflect the profile of supervised firms, the DFSA has introduced an annual controls questionnaire, to be completed by all Category 4 firms. The questionnaire asks for a self-evaluation in aspects of management and control within a firm that the DFSA views as critical. As such, the questionnaire assists a firm to identify action that it may need to take to meet regulatory requirements. The questionnaire also enhances the DFSA’s efficiency in allocating supervisory resources. The first questionnaire was issued in June, and firms have been selected for visits based on the responses received.
The DFSA implemented a new suite of application forms in 2009. The forms aim to be focused on risk and aligned to the DFSA’s approach to risk tolerance. A notes booklet for applicants was also introduced which now provides helpful information for applicants. The forms have been well received by applicants and their advisers. Additionally, a new risk assessment matrix in assessing applications was implemented in 2009.
In response to market developments, the DFSA has heightened its due diligence in relation to business viability, financial projections and competence and capability in senior management. The paramount aim is to make the right regulatory decision. The nature of applications received in 2009 has evolved with more applicants originating from the Gulf Cooperation Council (GCC) states and being ’start-up’ in nature.
The DFSA has seen an increasing trend toward changes of control, perhaps reflecting the current market conditions, where a significant or majority change in controller is anticipated, such that would give the proposed new controller a dominating influence over the future and direction of the Firm. Firms are reminded that the DFSA sees this as tantamount to the same level of regulatory due diligence as applied at the authorisation stage. Accordingly, the proposed controller will have to demonstrate to the DFSA that it is fit and proper to hold the financial services licence. These same high standards apply whether the proposed new controller is an individual or a corporate entity. Some of the key considerations:
The DFSA has placed particular emphasis on contributing to regional dialogue and cooperation with other regulators and industry players through active participation in forums, seminars and conferences. This has helped position the DFSA as an industry and its Executives as leaders and opinion formers.
Formalising regional cooperation and exchanging regulatory information with DFSA’s counterparts in the Middle East has been given high priority and will continue to receive it going forward. Traditionally, this has been brought about by way of formal bi-lateral regulatory protocols in the form of Memoranda of Understanding (MOU). In February 2009, the DFSA was pleased to sign an MOU with the Central Bank of the UAE, thereby enhancing and defining earlier informal meetings. This agreement to enhance cooperation and co-ordination marked a strengthening of the quality of regulatory standards, reinforced a commitment to ensuring financial stability and provided regulatory support to promoting sound economic growth in the region. This MOU with the Central Bank followed a similar arrangement with the federal securities regulator, the Emirates Securities and Commodities Authority (SCA) and, as the DFSA’s 10th regional MOU, confirmed the priority it has given to cooperating with its peers in the GCC.
In 2006, the DFSA became the first financial services regulator in the GCC to become a signatory to the International Organisation of Securities Commissions (IOSCO) multi-lateral Memorandum of Understanding (MMOU). This MMOU set the highest international standards for information sharing and assistance among securities regulators. It was followed in 2008 by the DFSA becoming a signatory to the BOCA Declaration, the agreement on cooperation and supervision of International Futures Markets and Clearing Organisations.
Further, the DFSA entered into an historic MOU in 2007 with the four federal agencies principally responsible for banking supervision in the United States – the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.
Today, the DFSA has expanded its international network of regulatory cooperation by signing 46 bi-lateral Memoranda of Understanding with regulators of strategic importance to the DIFC, including the UAE, the United Kingdom (UK), China, Germany, France, Singapore, Hong Kong, Malaysia and India, for example.
For some years the DFSA has been committed to supporting the work and objectives of international standard-setting bodies and, given the increasing global significance of these organisations for financial services, the DFSA extended its engagement in 2009. Apart from its continuing participation in the work of IOSCO, the International Association of Insurance Supervisors (IAIS) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the DFSA is also an active member of the Islamic Financial Services Board (IFSB) and the International Forum of Independent Audit Regulators (IFIAR). In October 2009, at the invitation of the Chairman of the Basel Committee on Banking Supervision, the DFSA joined the Basel Consulting Group (BCBS), the BCBS’s main body for cooperation with a wider group of jurisdictions. These memberships ensure that the DFSA not only remains abreast of international standards, but makes a contribution to the developments of these benchmarks. In October 2010, the DFSA will host the 17th Annual Conference of the IAIS in Dubai.
To assure the future for high standard regulation in the Middle East, it is critical that adequate training and career opportunities be provided for nationals. The DFSA’s Tomorrow’s Regulatory Leaders (TRL) programme is a training and developmental initiative designed by the DFSA to create sustainable career opportunities for Emiratis in financial services regulation. Launched in 2006, the TRL programme has attracted outstanding young Emiratis and will remain a strategic priority for the DFSA.
The DFSA no longer claims to be a new Authority in the making. It has entered an era of growth and change and the Centre has moved away from ‘set-up’ mode to a more mature and sophisticated marketplace. The business of carefully scrutinising firms in this new economic environment has become even more critical. Enhancing effectiveness and efficiency as well as targeting resources has enabled the DFSA to continue to react effectively and swiftly to the challenges posed in the coming years.
In November 2009, the DFSA celebrated the fifth anniversary of its formation as an independent statutory authority. In that time, the DFSA has established a recognised and credible track record of regulation and has sought to build international confidence in the DFSA and in the regulatory standards that it administers.
The DIFC Courts
The DIFC Courts were established in December 2004 as courts of the Emirate of Dubai under laws enacted by The Late His Highness Sheikh Maktoum bin Rashid Al Maktoum, Ruler of Dubai. Although a Court of the UAE, the DIFC Courts differ from the other courts in the country in a number of ways, including operating in the English language; using common law principles; only dealing with civil and commercial cases; and having a jurisdiction limited to disputes that involve the business community within the DIFC. Actively hearing cases since their inception, the DIFC Courts have firmly established themselves as a highly valuable component of the legal landscape in Dubai in a relatively short space of time, proudly complimenting and supporting the UAE justice system.
Through unfailingly upholding the principles of fairness and impartiality, and by consistently dispensing equal justice, the DIFC Courts have developed a reputation for operating to the highest international standards of legal procedure, providing the certainty, flexibility and efficiency expected by the global institutions operating within the DIFC. As an international financial centre, the DIFC has established a body of commercial and civil laws based on the best from financial centres around the world, melded to suit the needs of the DIFC and its community. Of course such a legal framework is only as strong as the Courts that uphold it, and this is why the DIFC Courts are such a critical part of the DIFC’s value proposition, acting independently from the DFSA and DIFC Authority and with the ability to review the Authority and Regulator’s rulings when required.
The DIFC Courts are now recognised as an innovator amongst regional Courts, having implemented a number of initiatives to enhance the legal offering in the region. These initiatives include a number of milestones, such as the adoption of a world-class electronic case management system to further improve the case hearing capabilities of the Courts; and the creation of a Pro Bono scheme to allow individuals who cannot afford a lawyer the ability to seek free advice from lawyers registered with the DIFC Courts.
Another important development for the DIFC Courts was the establishment of a Small Claims Tribunal, to hear cases where the value of the claim is less than AED100,000. The Small Claims Tribunal, which resolves 90 per cent of its cases in under three weeks, is available to any company or individual operating within the DIFC and plays an important role in promoting the creation of a Small and Medium Enterprise (SME) -friendly culture. The DIFC Courts foster an enabling legal and judicial environment that is conducive to trade, finance and investment and have taken great strides in the past 12 months to become one of the leading judicial systems in the region.
In synergy with the pace and nature of business in an international financial centre, the Courts have put in place arrangements to support accessible, swift and efficient justice, such as the Urgent Application facility. This offers 24 hours a day, 7 days a week access to justice through a dedicated emergency phone number. Court room technology allows for judges and witnesses to contribute to hearings live from locations anywhere in the world and the Courts’ case management system, implemented in 2008, enables access to a complete archive of all case papers, live in the Court room. In 2009, the DIFC Courts signed a protocol with the Dubai Courts, setting out the mechanism for the enforcement of each other’s orders and judgments and further reinforcing the cooperation between the two Courts.
To ensure that the litigation conducted by lawyers is to the highest professional standards, the DIFC Courts have recently implemented a Professional Code of Conduct to which all of its registered lawyers must adhere. This is the first Code of its kind in the region and it has been well received by the UAE’s legal community, an example of the DIFC Courts, and indeed the UAE’s desire to further the accessibility and transparency of justice in the country. As mentioned previously, another first for the Courts was the Pro-Bono scheme established in October, which further promotes access to justice for those without the financial resources to afford legal representation. Again, this has been adopted well by the UAE’s legal sector, which has been quick to sign up to offering free advice.
These best in class systems support advanced enforcement of DIFC law alongside an experienced network of Judges, which comprises a bench of eight, with over 130 years combined judicial experience, spanning three continents and all areas of commercial dispute resolution. Led by Chief Justice Sir Anthony Evans, former High Court Judge and Lord Justice of Appeal in England and Wales, the DIFC Courts were the first in the region to have a female judge on their bench. They also proudly boast two resident, common law, Emirati judges; yet another significant achievement for the Courts and the UAE.
One of the overriding principles of the DIFC Courts is to promote settlement. Of approximately 150 grievances bought to them over the past 18 months, around 90 per cent have been resolved outside of a trial, saving the Centre’s community millions of Dirhams and hundreds of hours of senior management time. When disputes within the Centre do make it to a formal hearing, efficiency saves the Centre’s businesses further time and money, through a commitment to swift and economical litigation practices at every step.
Since handing down our first judgment, the DIFC Courts have built a strong reputation for excellence among the international legal community. It has an experienced and dedicated team, confirmed at the 2009 DIFC Governor’s Awards where the Courts Registrar won the DIFC’s Distinguished New Employee of the Year Award. The Courts were also shortlisted for Distinguished Project of the Year and Distinguished Department of the Year, in recognition of its achievements to date.
Going forward, the Courts remain committed to continuous and meaningful development in support of the DIFC community. Collaborating with other courts is a key focus, and they have been actively working with their peers in the UAE and beyond to learn and develop. The DIFC Courts understand their role in supporting business in the DIFC and intend to continue developing their world-class judicial system to serve the needs of the community and justice.
Abdulla Mohammed Al Awar, CEO, Dubai International Financial Centre Authority, DIFC