- Extraterritorial legislation offers glimpse into the future of regulation, conference told
- Senior regulator emphasizes importance of quality of supervision

DOHA, QATAR, February 26, 2013 – Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, today concluded the 7th Gulf Cooperation Council (GCC) Regulators' Summit which was held in Doha on February 25 & 26.  

Firms will see a "palpable" shift from regulation to supervision if they have not already noticed it, said William Coen, deputy secretary general of the Basel Committee on Banking Supervision. His comments to the high-level industry conference were echoed by a number of other senior officials during the day's panel sessions.

"The regulatory phase really has slowed down and there is a light at the end of the tunnel. The shift...that has very plainly taken place is from regulation to supervision or from policy development to supervision," Coen told the opening day of the Gulf Cooperation Council's Regulators' Summit in Doha.

Coen's remarks related specifically to the work of the Basel Committee on its revised core principles but other speakers backed his view on the importance of the quality of supervision, particularly in the Gulf region where there are various approaches to regulatory architecture.

An earlier session on "Emergent Regulatory Trends", discussed the merits of three such approaches, sector-based, as in the U.S., an integrated approach such as the UK until the upcoming dismantling of the Financial Services Authority, and twin peaks of prudential supervision and conduct of business regulation, to which the UK is now moving with the Prudential Regulation Authority and Financial Conduct Authority.

The quality of supervision in any system was the key, said Ian Johnston, chief executive of the Dubai Financial Services Authority, which operates an integrated model as regulator of the Dubai International Financial Centre. "There is no system that will prevent failure," he said.

"The quality of regulation and the quality of supervision is much more important than the model you choose," he said, while expressing that his own marginal preference was for a twin peaks model the current trend, because he felt it had better consumer and investor protection with reduced opportunities for gaps in regulation. 

The extraterritorial push by some countries, notably the United States, on financial regulation is generally a force for good, a straw poll of regulators and compliance professionals has found.

The results of the vote, during a panel session of the 7th Gulf Cooperation Council Regulators' Summit, surprised a number of delegates. There was a clear acceptance, however, that it would be impossible to build first-class financial centres in the Gulf and beyond without the right rules and international best practice.

Regulatory arbitrage was, in any case, becoming a harder trick for firms to pull off than in the past, as financial centres aimed to raise standards, the conference heard. 

A recent example of this had been the far-reaching UK Bribery Act, passed in 2010, Michael Webb, board member of the New Zealand Financial Markets Authority, told delegates. 

Other extraterritorial rules included the Foreign Account Tax Compliance Act (FATCA) and the Volcker Rule enshrined in the Dodd-Frank Act, both of which had considerable reach. It was not simply a question of the U.S. trying to flex its muscles, however, delegates heard. 

The Volcker Rule, which restricts proprietary trading, covers U.S. banks; it also affects Islamic banking and a limited number of banks in the Gulf region, Walid Alameddine, chief executive of Promontory Financial Group, Middle East and Turkey, said. He described the Volcker Rule as a "major positive", regardless of the extra bureaucracy, and said it was impossible to build individual first-class financial centres in, for instance, the Gulf states, Turkey and elsewhere without following international legislation and best practice. It would be impossible for such centres to thrive without such a rule, he said.
"What we need here is much more regulatory development in this region and a strengthening of it to make it more and more in line with international standards. In this particular instance, the Volcker Rule is ahead of all the legislation whether it is in Europe, Japan, Australia, Canada or elsewhere."
"It is not only [financial] centres that are distinguishing themselves," he said.
Alameddine cited as an example Qatar National Bank, now the Middle East's largest bank. As such, he argued, it had to follow international best practice and had to have top-notch systems and controls. "Larger banks have to follow something like the Volcker Rule if we are to be taken seriously."
Other delegates thought that exporting the Volcker Rule outside the U.S. was completely inappropriate and could not have disagreed more strongly with Alameddine's view. They included Paul Atkins, a former Securities and Exchange Commission (SEC) commissioner, now head of Patomak Global Partners, a regulatory consultancy, who was moderating a panel at the conference.
The closure of Switzerland's oldest private bank, Wegelin, highlighted the importance of a single approach, delegates heard. In January, Wegelin agreed to pay $57.8 million to the U.S. government, having admitted conspiracy charges for helping wealthy Americans avoid more than $1.2 billion in tax payments to the Internal Revenue Service. The bank had no presence in the U.S. and had complied with Swiss laws, but this was now a global issue, which FATCA was confronting.
"There will be other FATCAs coming. The UK is looking at it also," Chahdan Jebeyli, group head of legal and compliance at Bank Audi in Beirut, warned.
The conference was also told that the decision by the Financial Action Task Force (FATF), the global standard setter for anti-money laundering, to class tax evasion as a predicate offence for money laundering, had significant implications for "know your customer" procedures at banks worldwide, which again highlighted the importance of a collective approach worldwide.

Privately, however, officials expressed concern about the swinging penalties for non-compliance with FATCA and a stringent U.S. approach. "There is an element of banking, and an element of politics about the rules. They should do more banking, less politics," one told Compliance Complete on the sidelines of the conference.


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