This country-specific Q&A provides an overview to Banking & finance laws and regulations that may occur in Qatar.
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
The Qatar Central Bank (hereinafter referred as the “Central Bank”) has been empowered with enforcing policies related to the regulation and overseeing of financial services activities conducted by financial institutions. In this respect, financial institutions are defined under Article 1 of Law No. 13 of 2012 issuing the Qatar Central Bank Law and the Regulation of Financial Institutions (hereinafter referred as the “QCB Law”), as any bank, insurance, reinsurance, investment, exchange house, representation office, or external unit, and other financial institutions as determined and regulated by a decision of the Central Bank.
Which type of activities trigger the requirement of a banking licence?
As mentioned above, Article 1 of the QCB Law states that any legal entity which shall conduct all or some of the activities of banking, investment or development in Qatar, falls under the requirement to request a banking license.
Does your regulatory regime know different licenses for different banking services?
The regulatory regime grant license depending on the nature of the bank, as the license for a local bank will differ from a license for a foreign bank. Furthermore the sector activities of the bank also play a role in the form of the license e.g. commercial bank licenses will not be the same as an industrial bank. In addition to this, an Islamic banking license differs from conventional banking due to the greater regulation and the need for a Sharia compliant board monitoring the activities of the bank to ensure compliance with Islamic law.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
The banking sector is highly regulated in Qatar, as the scope for the bank will be clearly stipulated in the license. However, if the bank wishes to do activities which are out of the scope of the license, it will first seek for permission from the Central Bank prior to initiating any other banking activities.
Is there a “sandbox” or “license light” for specific activities?
During the opening speech ‘Qatar-UK Financial Services Event’ held on Wednesday 12 February 2020 in Doha, the Governor of the Central Bank stated that it is preparing to launch ‘Sandbox’ technology for computer security as part of QCB’s preparations to unveil its Financial Technology (Fintech) strategy.
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
QCB Circular No. 6 of 2018 regarding trading in Bitcoin provides that such currency is illegal. The Central Bank urges all banks operating in Qatar not to deal with Bitcion, or exchange it with another currency, or open an account to deal with it, or send or receive any money transfers for the purpose of buying or selling this currency.
What is the general application process for bank licenses and what is the average timing?
Once the applicant applies for a license and submits the relevant documentations, Article 82 of QCB Law provides that the Governor shall issue his decision whether to grant the license within the sixty days from the date of the fulfilment of all the requested conditions. However, in case of rejection, the Governor shall issue a grounded decision whereas the applicant is allowed to appeal such decision within the 15 days before the “Dispute Resolution Committee”.
Is mere cross-border activity permissible? If yes, what are the requirements?
Cross border activities are permissible since foreign banks might be required to interact with the parent company. Nonetheless cross border activities always raise the concern of potential money laundering. Therefore, the Central Bank raises the following guidelines by which money laundering can be manifested through cross border activities, these are:
Customer introduced to the bank by an external financial institution located in a country known to be affected by criminal drugs production and trafficking.
Customers paying/receiving regular large amounts in cash or by fax or telex transfer, without any indications to the legitimate sources of those funds, or customers connected to countries known to be affected by drugs production or trafficking or in relation to the prohibited terrorist organizations, or countries offering opportunities for tax evasion.
Incoming or outgoing transfer operations executed by a customer without using any of his accounts at any bank.
Constant and regular withdrawal/deposit of cheques issued in foreign currencies or travel cheques into the account of the customer.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
Based on Article 79 of the QCB Law provides that, without prejudice to the provisions of the Commercial Companies Law and to Law No. 13 of 2000 Regulating the Investment of non-Qatari Capital in the Economic Activity, the QCB shall grant licenses to undertake financial services and activities in accordance with the conditions and regulations provided under this Law, to the following financial institutions:
Banks, provided that they take the form of joint-stock companies that offers its shares for public offers, and in accordance with the conditions and restrictions specified by the Central Bank, and after submission to the Council of Ministers;
Investment and financial companies, provided that they take the form of joint-stock companies;
Insurance and reinsurance companies, joint-liability companies and other companies engaged in insurance that take the form of joint-stock companies and offer their shares for public offers in accordance with the conditions and restrictions specified by the Central Bank;
Exchange companies, in accordance with the conditions and restrictions specified by the Central Bank;
Financial consulting and investment firms, in accordance with the conditions and restrictions specified by the Central Bank;
External units and representation offices, in accordance with the conditions and restrictions specified by the Central Bank;
Any other financial institutions as determined by the Central Bank, and in accordance with the conditions and restrictions specified by the board of directors of the Central Bank.
What are the organizational requirements for banks, including with respect to corporate governance?
The QCB shall develop and implement policies relating to regulation, control and supervision of financial services and activities in the State of Qatar. Additionally, the board of directors of QCB shall assume the main role and responsibility of forming the organisational structure for the bank or other financial institution.
In this respect, QCB Circular No. 68 of 2015 regarding Corporate Governance Guidelines (“Guidelines”), provides for the corporate governance principles that shall be applicable on all banks licensed by the QCB.
Principle (1) of the Guidelines states that the board of directors of the QCB has overall responsibility to the bank including: approving and overseeing the implementation of the bank’s strategic objectives; policies risk profile; governance framework and corporate culture. The board is also responsible for oversight of senior management.
Do any restrictions on remuneration policies apply?
Principle 4 of the Guidelines stipulates that one of the main committees of the board of directors is the Compensation and Remuneration Committee, which shall at a minimum support overseeing the following:
Ensure that the remuneration policies, which must be approved by the board, is consistent with the relevant best international banking practices for the chairman and members of board and all senior management including the CEO. Oversee the use of such policy and review it annually. Comply with the rules and policies of remuneration as mentioned under Principle (9).
Ensure that remuneration policy considers all types of risks exposed while allocating remunerations, in such a way that there should be alignments between profits gained and degree of risk for all banking business and activities.
Ensure that the period of remuneration should be aligned with the actual income, particularly from the long-term performance.
Remuneration committee should work together with Risk Management Committee or Chief Risk Officer, regarding assessment of incentives under risk assessment based remuneration system.
Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
Principle 1 of the Guidelines provides, that one of the roles and responsibilities of the board is to approve the reviewed interim financial statements and audited annual statements. This should present the bank’s financial position in accordance with the applicable international financial reporting standards, public disclosure standards, Basel Committee’s Pillar III disclosure standards (and the equivalent for Islamic Banks), and recommendations of the general assembly on approving the financial statements at year end. The QCB Circular No. 3 of 2014 was issued to regulate Capital Adequacy Ratio – Basel III Framework. Whereas QCB Circular No. 6 of 2014 regarding Capital Adequacy Ratio – Basel III Framework and IFSB – 15: Revised Capital Adequacy Standards is directed to Islamic banks, and attaches the Implementation Instructions, Basel III Framework for Islamic Banks – Pillar 1 Guidelines for Capital Adequacy.
Are there any requirements with respect to the leverage ratio?
QCB Circular No. 63 of 2014 was issued to regulate Leverage Ratio in all national banks operating in Qatar. In this respect, national banks shall maintain more than 3% of the leverage ratio at all times.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
The QCB Implementation Instructions – Basel III Framework for Conventional Banks provides the following:
Risk weights for eligible liquidity facilities
For eligible liquidity facilities as defined in paragraph 217 and where the conditions for use of external credit assessments in paragraph 206 are not met, the risk weight applied to the exposure’s credit equivalent amount is equal to the highest risk weight assigned to any of the underlying individual exposures covered by the facility.
The QCB Implementation Instructions – Basel III Framework for Conventional Banks further provides under paragraph 217 that:
Eligible liquidity facilities
Banks are permitted to treat off-balance sheet securitisation exposures as eligible liquidity facilities if the following minimum requirements are satisfied:
a) The facility documentation must clearly identify and limit the circumstances under which it may be drawn. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements. In addition, the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw, or be structured such that draw-down is certain (as indicated by regular or continuous draws);
b) The facility must be subject to an asset quality test that precludes it from being drawn to cover credit risk exposures that are in default.
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
Banks are under an obligation to file in the monthly statements of assets and liabilities (for commercial as well for Islamic banks). All banks are obliged to provide the Central Bank with an electronic file containing the balance sheet.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
Principle 6 of the Guidelines provides, that risk management policy should be applied on a consolidated basis for the whole banking group. Taking into account the potential risks arising from the bank’s external activities and the bank’s head office shall be responsible for applying the policy to the whole group.
Banks are required to take into consideration the potential future changes when assessing credit risk i.e., at the levels of individual clients, their borrower groups, economic sectors and products. These changes should be considered when assessing the levels of specific provisions or any other potential provisions necessary to cover the credit risk in a consolidated basis.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Banks are required to be up-to-date with all developments that may have an impact on the risk management function. These developments may be internal such as, balance sheet and income statement, or external developments such as geographical expansion, mergers and acquisitions. These developments must be reported to the Central Bank.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Article 124 of the QCB Law provides that the board of directors shall determine the ownership ratios and terms of natural and legal persons of the shares of financial institutions. These will be under the control and supervision of the Central Bank, and such ratios may not be exceeded in any way.
Are there specific restrictions on foreign shareholdings in banks?
Please refer to our answer under Question 18 above.
There is nothing preventing a foreign bank to undertake operations in Qatar. However, a foreign bank who wishes to operate in Qatar has to submit more documentations compared to a local bank such as; a list of names of members of the board of directors and executive officers of the parent company; international rating category issued by the international rating agencies to name a few. Therefore the process of receiving a license for a foreign bank may be slightly lengthier.
Is there a special regime for domestic and/or globally systemically important banks?
There are no known ‘special regimes’ for banks whether national or international. Nonetheless, local companies are given further support in comparison to non-locals due to Qatar’s 2030 vision and the countries long held ambition to support local businesses.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
Article 216 of QCB Law provides:
The Bank may impose a financial penalty of not more than (10,000,000) ten million riyals for each violation, committed by the financial institution, of the provisions of this Law or the bylaws, resolutions or instructions issued in implementation thereof.
It may also impose a financial penalty of not more than (100,000) one hundred thousand riyals per day for each ongoing violation, committed by the financial institution, of the provisions of this Law or the bylaws, resolutions or instructions issued in implementation thereof.
The Bank shall determine the appropriate financial penalty in accordance with the gravity and enormity of the offence, according to the circumstances of each individual case, and after notice and warning to the financial institution in violation to remove the causes of the violation within a specified period.
Article 217 of the QCB Law provides:
The Bank may impose a financial penalty of not more than (2,000,000) two million riyals on any financial institution that refuses to provide the Bank or its inspectors with information or data they require, or refuses to allow them access to books, records and documents, or provides them with misleading information.
It is also to be noted that sanctions relating to anti money laundering will be sanctioned by virtue of law No. 4 of 2010 (“Money Laundering law”). Under Article 72 of the Money Laundering law the sanction is prison term not exceeding seven years and a fine not exceeding QAR 2,000,000.
What is the resolution regime for banks?
The Ministry of Finance and the Central Bank have powers at their disposal to support financial situations which are failing to ensure the fluidity of financial institutions in Qatar and to uphold the confidence of people in the financial system.
How are client’s assets and cash deposits protected?
Part 6 (Articles 140 – 159) of the QCB Law governs the protection of the clients of financial institutions. For instance, Article 144 of the QCB Law provides that, as the supreme authority on supervision and control of services, business and financial activities in the State, the bank shall set the rules and regulations which are necessary to protect customers of financial institutions according to international best practices.
Furthermore, Article 145 of the QCB Law provides that all client accounts, deposits, trusts and safety deposits in banks and all transactions related to them, shall be confidential, and may not be accessed or disclosed and nor may any information or data about it be given to any person either directly or indirectly, except by written permission from the client, his heirs or legatees, or based on an enforceable court ruling in a current legal dispute.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
Is there a requirement for banks to hold gone concern capital (“TLAC”)?
Paragraph 21 under the QCB Implementation Instructions – Basel III Framework for Conventional Banks provides that total regulatory capital will consist of the sum of the following elements:
Tier 1 (“T1”) Capital: going-concern capital
(a) Common Equity Tier 1 (“CET1”)
(b) Additional Tier 1 (“AT1”)
Tier 2 (“T2”) Capital: gone-concern capital
For each of the categories above, there is a defined set of criteria that instruments are required to meet before inclusion in the relevant category. For instance, paragraph 43 of the aforementioned instructions provides that the objective of Tier 2 is to provide loss absorption on a gone-concern basis. Based on this objective, a table is provided within this paragraph 43 which sets out the minimum set of criteria for an instrument to meet or exceed in order for it to be included in T2 capital.
In your view, what are the recent trends in bank regulation in your jurisdiction?
Banking regulations have become more aware of the threats of cyber security, particularly since the hacking of Qatar News Agency in May 2017. Consequently, more banks are enhancing their security departments, including the Central Bank, which assembled a dedicated team to deal with the cyber-attacks.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
The biggest threat that the financial sector may face in Qatar is the misuse of technology. In this respect, QCB issued circular No. 4 of 2018 regarding Threats of Modern Technology on Banks, as Qatar is committed to enhance cyber security initiatives in the financial sector.