The regulatory environment is a key factor for any firm considering new jurisdictions. Funds Global talks to George Pickering and Shaun Swan of the QFCRA about the new rule book, risk-based regulation and a streamlined registration process.
The Qatar Financial Centre Regulatory Authority (QFCRA) was set up as the independent regulator for the QFC in 2005 as part of Qatar’s objective to establish a financial system with world-class regulation. The QFCRA’s objectives include the promotion and maintenance of efficiency, transparency, integrity and confidence in the QFC as well as the maintenance of financial stability and reduction of systemic risk.
The QFCRA is also responsible for developing policy for the Qatar market alongside its supervisory role. This role has become more prominent since a reorganisation of the regulator’s legal, policy and enforcement functions in 2009 in order to align it better with the strategic priorities of the QFC. As a result, the Policy, Enforcement and Risk team was separated from the QFCRA’s legal function.
In February 2010, the QFC unveiled its plan to develop Qatar as a global hub for the asset management business, alongside reinsurance and captive insurance. The strategic prominence granted to the asset management sector led to the QFCRA to issue a consultation paper on making amendments to its rule book.
The previous rule book for Collective Investment Funds (CIF) had not been overly successful and had resulted in few applications, says George Pickering, managing director, Policy, Enforcement and Risk. “There was a need to simplify and strengthen the regulatory process so that current and future participants could have full confidence in the system.”
Following the consultation period, new rule books for CIF and Conduct of Business became effective as of 1 January 2011. The changes focused on four areas within fund management:
• allowing authorised firms within the QFC to operate foreign funds;
• establishing a regime for QFC-registered retail funds;
• allowing foreign funds to be marketed to retail customers;
• allowing the custodian of a QFC collective investment fund to also perform administrative functions for that fund.
The last of these areas reflects the increased interest from international custodians and asset servicing firms in establishing a presence in Qatar. State Street is already there and JP Morgan looks set to join them. Pickering believes the arrival of these asset servicing firms will dovetail well with the growth of the funds market. “We are looking for firms to provide fund administration. The aim is to safeguard assets but also provide more advanced services, such as daily Navs [net asset values]. The rules allow for that but it is a question of seeing whether there is a demand for this.”
In addition to these changes, the new rule books also covered private placement, allowing for greater involvement of private equity and hedge funds within the QFC, another area of increased interest. “I think the new rules send a clear message that we are open for business and have a clearer and more streamlined process for setting up within the QFC Authority. And we have received a lot of interest,” says Pickering.
“There are a lot more firms looking at registering their own funds within the QFC Authority,” adds Pickering. “Most of this activity is coming from the QIF and private equity funds, but there is also significant interest in marketing funds for the retail space which has been quiet up to now but will develop in time.”
One notable aspect of the financial services industry in Qatar is the fact that there are essentially two regimes – one is for state-based firms which is regulated by the Qatar Central Bank (QCB) and the other is the QFCA which is aimed at firms with an international focus, be that overseas firms looking to set up in Qatar or Qatar-based firms looking to attract investment from overseas.
The funds industry has not flourished within the QCB-supervised regime which has concerned itself primarily with the banking sector. Regulation has been prudent and cautious but this has resulted in underwhelming levels of interest in funds. Conversely, the QFCRA’s regulatory model is more based on international standards such as that practiced within the UK and the European Union. It has built up its expertise by employing staff from these international jurisdictions and, says Pickering, is well placed to capitalise on the growing international interest in Qatar.
Aside from the attraction of international interest, the regulatory changes are also designed to create more jobs in Qatar. In previous years there was more of a suitcase banking/PO Box approach to investing in the region but it is hoped that there will be a greater physical presence from international firms and this will in turn encourage greater involvement from Qatari-based investors and also prospective professionals.
“There is a lot of institutional and individual wealth in Qatar and a flourishing asset management business would be a good way to invest this wealth,” says Shaun Swan, associate director at the QFCRA. “Furthermore, we hope that firms will choose to have a physical presence here. The economic story is very good and the infrastructure is here. We have a graduate fellowship programme designed to get more Qataris actively involved in the industry.”
There is also a desire to have more local professional services firms established in the QFC, especially on the legal side, says Swan. “There are numerous international law firms now established in Qatar but we are also trying to get more local law firms involved so that the professional services infrastructure combines both domestic and international expertise.”
As well as the assurance of a regulatory regime that meets international best practice, firms looking to establish new funds in Qatar will be looking for a simple registration process. The first step in this process is to be incorporated. As in most other jurisdictions, the length of the process is dependant on the complexity of the business involved. A simple business model can be incorporated relatively quickly. There is also an overlaying CIF registration to complete for the establishment of a fund.
“If it is a firm we are familiar with, and if it is a strong applicant and the fund is not overly complex, then the process can take weeks rather than months,” says Swan. “For any prospective applicants, the smartest approach would be to have the licensing and registration processes all lined up so that we could look at them in parallel. And the more detail there is in the original application, the quicker the process generally is.”
So what makes a strong applicant? “A good commercial history and a good regulatory record are important, particularly if the track-record relates to the business they want to set up. We also look at the quality of the presentation and any consequent discussion.”
There are things that can be done before getting to the application process, says Swan. “If a firm is already based in the QFC and if it is certain about the business it wants to establish, then it should be possible to get their proposal properly arranged and aligned. The application process is very consultative and the more certainty there is in the application, the easier that consultative process becomes.”
Beyond the initial registration stage, the ongoing regulatory process should also be made easier for firms by the recent implementation of an electronic submission system for regulatory filings that covers prudential returns and applications for approved individuals. According to the QFCRA, the new e-submission platform will improve the efficiency of the regulator, lighten the administrative load for QFC firms and help the QFCRA reach its goal of being at the forefront of best regulatory practice.
The QFCRA has also attempted to adopt a more risk-based stance on regulation, says Swan. This involves taking both a micro-prudential approach with on-site visits and also a macroprudential approach by looking at the risk profile of firms and ensuring that they are not overly exposed to particular sectors, such as real estate.
All in all, the QFCRA is confident that the changes enacted over the last three years have created a world-class regulator environment that international firms would understand on arrival there.
“The new rule book is in place. We have clarified the types of funds and the types of investors that we are looking to bring into the market. And we have strengthened our capacity. We have had three briefing sessions about the new rule book and that has resulted in strong interest around a range of possible investment schemes,” says Pickering.
©2011 funds global