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United Arab Emirates > Legal Developments > Law firm and leading lawyer rankings

Editorial

Restructuring of Qatar’s Banking and Finance Cluster

By Ahmad AnaniBanking & Finance Department - Qatar The State of Qatar has one of the strongest and fastest growing economies in the world. The Qatari economic numbers are astonishing with Gross Domestic Product (GDP) standing at 52.7 billion US Dollars in 2006 and per capita income averaging to 76,000 US Dollars (2007). The GDP of Qatar is mainly derived from its oil and gas production (60%). Nevertheless, the Government of Qatar has a detailed plan to diversify the economy based on the oil and gas revenues that are surging due to the international increase of oil prices.

One of the main economic sectors that Qatar is keen to develop is the services sector currently contributing to 18% of the GDP. In recent years, the Government of Qatar has promulgated many laws to diversify the economy and attract foreign direct investment including a foreign investment law. The Government of Qatar has also identified several clusters that it wishes to develop including banking and finance, education, healthcare and professional sports. The development of the banking and finance cluster was signified by the set-up of Qatar Financial Center (“QFC”) in 2005 and the issuance of a new banking and finance law (law number 33 of 2006 “Banking Law”) in 2006. The QFC Law number 7 of 2005 (“QFC Law”) was promulgated in May 2005 to set-up the QFC. By virtue of the QFC Law, the QFC was set-up as a “parallel” jurisdiction to that of Qatar. The QFC is not a free zone and firms that are set-up in the QFC are considered Qatari companies for all intended purposes. The same are not required to obtain further licenses to operate in Qatar, nevertheless. The setting-up of the QFC marked the lifting of a long ban that was imposed by the Qatari Government on the banking and finance and insurance clusters.  The QFC comprises two main activities; namely banking and finance, on the one hand, and insurance and re-insurance, on the other hand. Authorised firms may engage in banking, finance, investment, insurance, re-insurance and other ancillary activities. The QFC, however, has placed a ban on retail banking and finance business on its authorised firms. Moreover, the QFC will only allow non-regulated activities that are “strategically fit” in the QFC and not any non-regulated activities like some of the other financial centers in the region.  The QFC Law and its subsidiary laws and regulations have been based on common law best practices. This prompted the setting-up of a separate court system for the QFC as the Qatari courts, that rule on Qatari civil law based legislation, are inexperienced in handling common law based legislation, especially the QFC legislation that is more specialized and sophisticated. The Qatari law do still apply in the QFC insofar as they are not contradicted or excluded from application by the QFC legislation. Thereafter, the Government of Qatar issued the Banking Law which is still a conservative and closely-held piece of legislation. The Banking Law has not lifted the ban placed on foreign investment in the Qatari banking and finance cluster. This is understandable, nevertheless, as the QFC serves such purpose. What the legislation, un-understandably, fails to achieve is to renovate the banking and finance legislation which regulates those entities that are governed by the same. One would assume that in parallel jurisdictions, parallel developments shall take place. This lack of balance, coupled with the desire to be more competitive in a crowded regional market, has urged the Qatari Government to re-think its options. In May of 2007, the Chairman and CEO of the QFC Regulatory Authority made a major announcement. The Qatar Central Bank, The Doha Securities Market and the QFC are to be amalgamated in a single regulator. The new single regulator, unnamed yet, will offer a higher standard of regulation for the banking, finance, investment, insurance and re-insurance clusters based on good corporate governance, transparency and best practices. This revolutionary step is designed to establish Qatar as key player in the regional and international financial services map. Moreover, this move is supposed to attract foreign investment to Qatar in this vital cluster. Since May of 2007, the Qatari Government has released very limited information on the new regulator. We know for a fact that the Qatari Government has set-up an ambitious deadline for the new regulator to be launched being end of 2009. We are also aware that the new regulator will be based on the best of the practices of the three regulators being amalgamated. The three regulators have been engaged in extensive meetings to agree on the best practices to be adopted by this new regulator. What is very interesting to watch for is the new financial regulation underlying the establishment of this new regulator. The Qatar Central Bank and the Doha Securities Market are both based on civil law practices while the QFC is based on common law practices.

The result of the amalgamation would be one of the three options: 

    A new regulator based on civil law best practices. 

    A new regulator based on common law best practices. 

    A new regulator based on a hybrid of common law and civil law best practices. 

It is established that the QFC has the most developed regulation of the three amalgamating regulators. If the choice is to be made between the practices of the three amalgamating regulators, I would assume that the QFC practices would prevail. If the new regulator is to be based on civil law best practices, I am not sure if much would have been achieved by this move. If the new regulator is based on a merger between the civil and common law best practices, the new beast might not have harmony because those are two very different legal systems that may not be able to co-exist. Therefore, the only viable scenario would be to adopt the QFC best practices. Nevertheless, this raises a whole set of different questions. Is it possible for a common law unit to survive in a civil law environment? How would the new financial regulations interact with the rest of the civil law legislation in Qatar? 

Only the future would tell.

 

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