Ithmaar Bank executive calls for principle based regulation of GCC financial sector

Al-Mutawa was speaking at the Bahrain World Economic Summit, held under the patronage of Dr. Hasan A. Fakhro, Bahrain's Minister of Industry & Commerce.

Exploring the theme of regulation Al-Mutawa said, "Governments in the GCC region should realign their economic priorities in such a way that it instils confidence in the region's financial future. The process of ordering a system would be challenging to say the least, but a systemic deleveraging is necessary and inevitable. From the current economic crises it has become evident that a system based on rules and regulations is incapable of dealing with the complexity of the modern financial system. What is required is a regulatory mechanism that promulgates guiding principles, supported by strong disclosure and oversight."

The knock on effect of the current global economic crisis has seen confidence eroding from the region mostly led by the fall of share markets across the region with real estate and banking stocks plummeting on investor fears. Earlier last week the Governor of the Central Bank of Bahrain commented on the exposure of Islamic Banking entities to the global crisis and in the past few weeks, banks in the Gulf region went on to rake up losses in exposure to derivate products. In a bid to instill confidence, the region's central banks, have announced guarantees of deposits and have pumped liquidity into the market.

"These moves are likely to have limited impact. What we need today is long term, strategic and sustained measures to ensure the general health of the banking system and by extension the region's economy and its' continued prosperity,"

said Al-Mutawa.

Al-Mutawa went on to urge regulators in GCC countries to undertake resurgent and effective regulatory and management regimes of the financial institutions in the region. The system, he added, must be resilient as not to allow overexposure to any one sector. Dwelling upon regulation and management he underlined the need for an urgent overhaul of the financial regulation regime as the current system is not capable of adjusting to the dynamics of modern banking and finance. He urged the regulators to put in place a prudent risk management system to manage the level of risk that banks and financial institutions are allowed to take on and strengthen oversight of capital and liquidity, while enhancing transparency and valuations.

"The world regulatory environment is going to change, expectedly the GCC environment will follow suit," he said. "It will be up to the regulators to provide the impetus to sustain products and services in their financial systems. This could very well determine the winner in our race to establish ourselves as the pre-eminent centre of finance and banking in the world."