Sunday, April 12, 2009

Dubai's Regulator Takes A Hard Line

Sources: Dubai Financial Services Authority; Dubai’s Regulator Sharpens its Teeth, Financial Times

Dubai’s financial regulator, the Dubai Financial Services Authority, is overhauling its approach and promising to enforce a stronger regulatory scheme.

The Dubai Financial Services Authority (DFSA) is the sole independent regulator of all financial and ancillary services conducted through the Dubai International Financial Centre—the emirate’s financial free zone. The DFSA’s regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, and international equities exchange and an international commodities derivatives exchange.

In the midst of an international financial crisis, Paul Koster, chief executive of the DFSA warns that “the light touch approach is over”—he is raising the number of visits his compliance team makes to registered members by 20 percent. Although he is aware of the problems with overregulation, Koster claims that the DFSA must adapt to the problems faced by the current economy.

Generally, Koster says that the DFSA will take a thematic approach to the crisis, focusing on spot checking firms and then broadening out if they come across any warning signs. The DFSA has also changed rules to prevent Madoff-type scandals among the more than 300 entities it regulates.

However, many are unhappy with the DFSA’s new approach. Given the global environment, some claim that the DFSA shouldn’t increase the regulatory burden too much during the credit crunch, as businesses are under a lot of commercial pressure at the moment.

Discussion: Should regulators be sensitive to the commercial pressures currently faced by businesses? Or should regulators work as quickly as they can to address the lax regulations that contributed to the crisis in the first place?

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