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09 June 2023

UAE markets get urge to merge

By Frank Kane


Now this is the best idea I’ve heard for some time. Various reports speculated yesterday that the UAE was considering a unified regulator for the financial services industry and a more focused regulatory role for the Central Bank. Some suggested the moves might happen after the cabinet reshuffle. It cannot happen too soon.

It would signal the determination of the UAE in its aim to be the Gulf’s premier financial market place, and apply further pressure for the greater integration of the country’s three main financial markets – the Abu Dhabi Securities Market, the Dubai Financial Market, and the Dubai International Financial Exchange.

I have long believed that greater collaboration between these markets can only be for the good of the UAE, and putting them all under the central authority of a unified regulator will increase the “urge to merge” that I see as both beneficial and inevitable.
On a fact-finding trip to Qatar last week, I heard much about the attractions of the country’s unified regulatory approach in encouraging a “one-stop-shop” for the financial industry centred in Doha. If the UAE adopted the proposed measures, it would reinforce the Emirates’ place ahead of its regional rivals. And by separating out the functions of the Central Bank, confining it to purely monetary matters, it would make the UAE conform to “international best practice” in this area. London – generally regarded as the best regulated financial market place in the world, despite Northern Rock – has had a similar system for more than the past decade.

The UAE could claim a more modern regulatory framework than even the United States, which suffers from a surfeit of regulators and has seen new business such as IPOs suffer as a result.

The UAE Central Bank would then be free to concentrate on the hugely important issues of macro-economic policy that will determine the business framework of the UAE for years to come, like interest rate policy, inflation, and the proposed single currency. With subjects of this significance on the agenda, central bankers do not really need to be bothered with the daily minutiae of banking supervision.

These can conveniently be left to the new financial super-regulator, providing it is staffed with competent officials trained to international standards.

There will inevitably be teething troubles to overcome in the new regime. Qatar has had to contend with battles over territory between different vested interests, and you can imagine those squabbles being repeated in the UAE.

But as a broad strategy, I would imagine the UAE would want to take its overall regulatory framework from the existing DIFX regulator, the Dubai Financial Services Authority, which is internationally recognised as being run to the highest standards.

The day-to-day monitoring of transactions, licensing and listing procedures and supervision would be in safe hands with the Emirates Securities and Commodities Authority, which currently oversees both the Dubai and Abu Dhabi Exchanges competently enough. Witness the recent proposal from ESCA to split client accounts from broker trading accounts.

There will be a need at some stage to put some formal institutional body at the apex of this power structure, perhaps under the auspices of the Borse Dubai which, in a vague but symbolically important way, links the operations of DFM and DIFX.

This could be the seed of the Emirates Borse, or the UAE Stock Exchange, or the Emirates International Financial Exchange, or whatever the authorities want to call the unified market that, I believe, will make the UAE the premier financial market of the Middle East.