WATCHDOGS OF WAR

DFSA boss Dr. Habib Al Mulla is a key player in the battle to form the Gulf’s banking hub. He tells Richard Agnew there will only be one winner.

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By  Richard Agnew Published  May 15, 2005

WATCHDOGS OF WAR|~|ON-COURSE-200.jpg|~|ON COURSE: Mulla says DFSA wasn’t majorly affected by recent defections to the regulator overseeing Qatar’s rival Financial Centre.|~|Some decisions come back to haunt you, and things are no different for Dr. Habib Al Mulla, the chairman of Dubai’s Financial Services Authority (DFSA). Having sacked Philip Thorpe, his chief executive, in June last year after differences emerged between the two over corporate governance, the Englishman then reappeared a few weeks ago in Mulla’s equivalent role at Qatar’s upcoming Financial Centre (QFC). Then a number of DFSA staff left to join their former boss across the Gulf in Doha, boosting Qatar in its three-way fight with Dubai and Bahrain to become the region’s main hub for financial services. The move was at least a temporary setback for Dubai International Financial Centre (DIFC) — which the DFSA oversees. But Mulla denies that Thorpe has launched a deliberate campaign to put one over the man who fired him. “You can call it revenge, but I would call it a fair game,” Mulla says. “He is our competitor. I think it is absolutely fair and acceptable,” he adds. Considering the weaknesses in governance rules that have historically made some multinational banks and insurance providers reluctant to set up in the Gulf, the regulatory policies Thorpe and Mulla draw up are expected to be key in the battle between QFC and DIFC. Bahrain has essentially served as the region’s financial centre since the 1970s, and is aiming to cement that with the opening of its Financial Harbour development in 2006. Qatar, meanwhile, is looking to use its multi-billion dollar gas industry to lure project financiers to its shores. But Mulla, who also owns one of the largest law firms in the UAE, points out that DIFC has a solid headstart on its rivals. The centre officially opened last year and intends to launch trading on a regional stock exchange in September. And some of the leading names in international finance have been licensed to operate from the centre already, including Credit Suisse, Standard Chartered and AIG. “The question is which one is going to be the financial centre in the region — and I believe that Dubai and the DIFC is going to be,” Mulla says. “In terms of development and time, we are ahead of every other centre in the region,” he adds. Predictably, Mulla argues that — like in Europe — more than one financial centre can survive in the Gulf. The region has so far lacked the credibility to attract large numbers of international financial services firms and to compete with the established centres of Europe, Asia and the US, while local companies have also been forced to look abroad for their financial arrangements. But the trio of DIFC, QFC and Bahrain’s Financial Harbour will fill this gap, Mulla reasons. “The existence of the three centres is indicative of the fact that the region needs them,” he says. “It has lacked them for decades. DIFC serves a lot of purposes that the region needs — there is a lot of wealth that has to be exploited,” he adds. Mulla is also confident that the overall programme to establish DIFC is going according to plan, despite the recent defections to QFC. A week ago, he moved into his new offices in ‘The Gate’, an imposing, multi-storey arch that forms the entrance to the emirate’s financial district. The Dubai International Financial Exchange (DIFX), Mulla adds, is also on course to open for trading by its self-imposed deadline of the end of September this year, although DFSA has yet to award it an operating licence and DIFX is yet to announce any companies that plan to use it to list. The exchange, according to DIFX chief executive Steffen Schubert, is in talks with regional companies with a potential market capitalisation of more than US$100 million, mainly from the Gulf and wider Middle East, including Egypt, Jordan, Lebanon and Turkey. DIFX also says that state-owned firms in Dubai are in talks with it over using the exchange as a platform for privatisation. “Once DIFX is online and trading starts, the whole of DIFC will go onto another level,” says Mulla. “With trading, you will have a lot of activity and transactions, a lot of inward investment, plus the fact that it is the first exchange to be launched in the Middle East with this level of regulation will stimulate the other local and regional markets to raise their standards and try to improve their regulations,” he adds. After a slow start, DIFC, which was first announced in 2002, has also seen rapidly accelerating interest from investors in the eight months since it started taking applications in September 2004. Forty-one companies have now been accepted for membership of DIFC — 16 have received full regulatory approval while the other 25, such as law firms, are not involved in regulated activities. At least another 50 international financial services companies are also believed to be going through the DFSA’s approval process at the moment. “I’m more than confident,” Mulla says. “It’s less than a year since we issued the first licences and we have already authorised 16 firms, even though it’s important that this does not just become a business hub where anybody can come and set up. We think we will double the number by the end of this year,” he adds. The strength of the regulations the DFSA has drawn up, Mulla argues, is one of the main reasons behind the growth in interest in Dubai from international firms. The watchdog, he points out, was modelled closely on the regulatory systems used in the global financial centres of London and New York, but it has also drawn from the European Union for laws governing data protection, and from the Organisation for Economic Cooperation and Development (OECD) for money laundering rules. The recent appointment of Sir Anthony Evans as an independent chief justice to oversee activities in the centre will further reassure potential investors, Mulla adds. Thirteen laws in all have been enacted to govern the operations of the centre, but Mulla expects a further eight to be finalised shortly. “We expect that another batch of legislation which relates to non-financial activities — employment and property [will be issued] soon,” explains Mulla. “There may also be one or two more legislations required, such as trust law, which we expect to finalise soon. And if there is any business requirement to prepare a piece of legislation then obviously we will meet that need,” he adds. Mulla’s commitment to building a robust legal framework to control activities in the centre also includes mandatory adoption by all licensed companies in DIFC of the international financial reporting standards (IFRS). These have caused headaches for firms all around the world, but Mulla has opted to stipulate that companies setting up in DIFC must adopt them from day one, rather than allowing them to bring their own accounting standards to the development. Companies in Bahrain, Jordan, Lebanon, Kuwait and Qatar currently follow IFRS by law, but it is mandatory for banks to abide by it only in the UAE. In some European countries, banks have also been granted an additional grace period before they have to comply. But Mulla denies that this will affect interest in DIFC. “Strong regulations are an incentive for the financial sector,” says Mulla. “People look for places where there are good regulations, but serious financial institutions look to the places where there are strong regulations, because at the end of the day they’re a guarantee for institutions and shareholders. It may be difficult initially to adopt them but finally everybody will be pleased to have strong regulations in place,” he adds. Mulla also has little doubt about the robustness of DFSA, internally. Thorpe is currently actively hiring a team of 20 regulators for QFC, to be in place by the end of 2005. But Mulla points out that DFSA had managed to recruit 50 by May of this year and that his team could eventually be three times that size. “We expect to be at 80 or 90 staff by the end of this year and well beyond the figure of 100 next year,” he says. “A few people leaving is not going to cause us any problem. I don’t think the issue is about replacing them. We are in the process of growing and in the course of the next one or two weeks more people will join than those who are leaving,” he adds. Surprisingly, Mulla also says that there are no lingering hard feelings between him and Thorpe — arguing that the rivalry between the two developments mirrors similar battles between the established financial centres in Europe. Even more surprisingly, he maintains that the two men remain “friendly”. “I worked with Philip for quite a while,” Mulla says. “We worked together closely on dealing with the federal government and when the DIFC law was established and I still have very good contact with him. I recently met with him during the IOSCO (The International Organisation of Securities Commissions) conference in Colombo. We exchanged cards and talked. On a personal basis I could say that we are even friends,” he says. But at the same time, he can’t resist a final dig at his adversary. “People leave — that’s a normal part of life and you have to accept that," he says. “And if there are people who believe that their careers can be enhanced further by joining another jurisdiction, which I believe is behind DIFC, then of course that’s their choice,” Mulla adds. ||**||

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