Middle East financial services briefing

A round-up of key legal and regulatory developments in the United Arab Emirates, Kuwait, Qatar, Bahrain and Saudi Arabia 

Overview & Outlook for 2016

Legislative and regulatory reforms and enforcement actions by regulators in the Middle East in 2015 indicate that authorities are consistently moving towards a stricter supervisory approach to the regulation of financial services. We are observing an increasing focus on the development of regulation to meet global regulatory standards and policies motivated by a desire to:

• satisfy the requirements for membership to international standard setting bodies such as the International Monetary Fund ("IMF"), the Financial Action Task Force ("FATF") and International Organisation of Securities Commissions ("IOSCO") and to improve country ratings and reviews;
• deal with increasing depth and complexity of activities undertaken in their various markets (whether or not cross-border) which may entail interaction with regulatory counterparts in other jurisdictions;
• satisfy increased requirements for transparency and fairness and the need to ensure that authorities are able to manage increasing scales of activity and complexity of business, products and transactions efficiently and without compromising on the correct regulatory outcomes; and
• offer international standards of regulation equivalent to those offered in developed financial centres so as to encourage foreign investment and develop confidence in the financial services industry in their jurisdiction.

Indicators of a move towards international standards of regulation include:

• the introduction of rules requiring senior management in firms to take a greater role in risk management.
• the launch of a new financial services regulator (based on common law jurisdictions such as the UK) in Abu Dhabi.
• enforcement actions undertaken by the authorities in the Middle East which have largely focused on tackling anti-money laundering with the outcome that firms have been tasked with implementing a comprehensive overhaul of their existing anti-money laundering frameworks and policies.
• the increasing number of memoranda of understanding signed by regional financial services authorities with their counterpart authorities in other jurisdictions, agreeing to co-operate on investigations and share information on financial activities.

While keen to meet international standards, the authorities have noted that their approach to regulation of financial services must also ensure that their financial centres remain attractive and open to investors as a place for business. This has been reflected most recently in Saudi Arabia with the announcement that a decision has been made to gradually open up its markets to foreign investors during 2016 (see below) and Qatar's announcement that Gulf Cooperation Council nationals will be treated as equal to Qatari citizens when investing in Qatari companies (see below).

This balancing exercise by the authorities means that financial services firms and banks consequently will be expected to continue taking proactive measures towards ensuring on-going best practice compliance with financial services regulations, while regulators will need to ensure that they have appropriate systems and controls in place to foster and maintain confidence in their financial services industry, assist in maintaining financial stability of the industry while supervising conduct and detecting, preventing or restraining conduct which could damage their reputation, harm market participants and users or weaken the reputation and confidence of the jurisdiction and its financial services industry. When conducting new and existing business in 2016, we therefore anticipate that regulators in the region will continue to focus on activities such as:

• Reviewing anti-money laundering and corporate governance frameworks and policies.
• Understanding the role of senior management in effective risk management.
• Monitoring any risks arising from new investments and changing rights of investors.

We summarise these trends and developments in our briefing, based on events in 2015.

Stuart Paterson                              Natasha Mir                             Nihar Lovell

Partner                                           Senior Associate                      Associate