DFSA on alert for EU crisis fallout

The Dubai Financial Services Authority (DFSA) sees no direct correlation between the euro crisis and the Dubai International Financial Centre (DIFC) but the regulator remains on alert and is focusing on risky areas such as foreign exchange.

"I don't see a one-on-one correlation between Europe and this zone," Paul Koster, DFSA Chief Executive, told Emirates Business. "We have a fortunate situation that this region is cash-rich, so some of the problems that governments in Europe face are not applicable here."

"But the crisis has shown that some steps need to be taken, which are now being enacted in the region, and this will make it even stronger," he added. Koster however expressed concern over some regulators' unilateral moves, saying co-operation among regulators all over the world should be strengthened.

Germany's unilateral move to curb speculative trading of government bonds and some naked short-selling on May 18, for one, had baffled investors and caused stocks around the world to plunge.

Lawyers were forced to work long hours to interpret rules enacted by BaFin, Germany's financial regulator, on less than a day's notice.

"We've seen some unilateral moves by regulators, politicians and countries. I hope that is not going to happen too often, because we can't in this world – where everything is connected in the system – see regulators go off and try to carve out their own little steps and measures to deal with the crisis," Koster said.

"One of my main areas of concern is how do regulators co-operate and exchange information with each other," he added. "Some regulators are well-equipped with enough means and opportunities. Others need strengthening and more powers."

DFSA, which last year increased its on-site visits by 40 per cent, will this year focus on risky areas. "Yes, we are still on alert," Koster said. "You've seen the swings in the market in the past few days. Regulators can't just sit back and say it's over. The crisis is not done [with] entirely."

"What we are trying to do is not go out to every place," he said. "We try to do a risk analysis and based on that, we approach firms or a theme where we see some of the changes. Foreign exchange is one of those areas where we are very careful that firms do not overstep the boundaries into retail foreign exchange."

The DFSA's site visits went up from 97 in 2008 to 135 in 2009. The regulator has also commenced nine investigations – five of them are completed while the other four are ongoing, according to its annual report. This ranges from alleged misconduct, including insider trading; market manipulation; breaches by directors in their duties to firms and shareholders, and in licence conditions; providing unlicensed financial services in the DIFC; and providing false to misleading information to the DFSA.

The DFSA saw a six per cent growth in the number of entities it regulates from 304 in 2008 to 323 in 2009. Licence applications for establish a presence in the DIFC also continued to grow.