Dr Habib Al Mulla calls for improved investor protection

In his speech, Dr. Al Mulla commented on investor protection, regulation, and corporate governance, while reviewing the recent correction in Gulf markets. He explained the difference between the Dubai International Financial Centre (DIFC) and the 'local markets'.

In using London as a model, he explained the difference between the roles of an international financial centre, a national capital market and a stock exchange, explaining that a focus on on-exchange trading was too narrow in gauging long-term success and failure.

In calling for improved investor protection Dr. Al Mulla said: "To achieve this, good internal mechanisms are critical to ensure that the interests of all stakeholders are considered. These include financial controls, compliance, and other processes of risk management. Together these have the effect of significantly reducing the possibility of human errors in judgment and deliberate breach of procedures."

During his address Dr. Al Mulla explained that the GCC-wide slide in bourse values may have dominated the headlines, but the market correction registered in the stock markets during the first quarter of this year is unlikely to check the UAE's robust macro-economic fundamentals.

Globalisation and the trend towards harmonisation and standards call for a new approach, and the creation of international financial centres with modern laws and regulations, as well as the modernisation of national capital markets to conform to international standards, he said.

The DIFC, as is a purpose-built financial free zone in the United Arab Emirates, has been established as part of the goal to position Dubai as a recognised hub for international institutional finance, and as the regional gateway for capital and investment in the Middle East, Dr. Al Mulla pointed out.

In explaining the correction, Dr. Al Mulla explained 'hot money' whereby US$300 billion were brought back to the UAE, post the September 11 attacks, to a region that already has a large portion of wealthy individuals, before adding that money normally seeking foreign markets had also largely stayed in the Gulf. This combination created huge amounts of funding in the Gulf and with it the challenge of creating a stable framework to ensure that such investment was protected against market risk; with hindsight it was far from easy.

The UAE's robust macro-economic fundamentals provide a solid base for economic regeneration and prosperity. While oil revenues remain high, the UAE can accelerate investment in non-oil sectors; good news for international financial centres like Dubai and for local markets.

The local markets are relatively young and immature; they have attracted a flow of 'hot money' and important lessons have been learned; the markets have corrected. The GCC markets must take note of these lessons and make the necessary changes. They must embrace international standards wherever possible.

Furthermore, the Islamic financial services industry would benefit greatly from the standardisation of Islamic products and contracts. This would promote greater consistency across the industry as a result of Islamic contracts being applied and interpreted in the same way within a jurisdiction and also across different jurisdictions, Dr. Al Mulla said.

Dr. Al Mulla explained that the DIFC's approach on corporate governance regime is based primarily on the UK Combined Code and the standards set by the OECD which produced an authoritative set of principles. This, he said, is a good start when it comes to investor protection.

Dr. Al Mulla explained that the DIFC is a professional wholesale market and is underpinned by an independent risk-based regulator, the Dubai Financial Services Authority (DFSA), which harnesses best practices and international standards wherever possible. As a new international financial centre positioned strategically between the City of London and Asia, the DIFC creates a new time zone in the Middle East and the DFSA provides a benchmark for modern regulatory measures.

The scale of liquidity is amazing, he added, before backing up his thoughts quoting IMF estimates that OPEC's current account surplus for 2006 is likely to rival Asia's at over USD300 billion.

Switzerland-based BIS (Bank of International Settlements) - the World's Central Bank of Central Banks - estimates that OPEC members have earned over US$1.3 trillion in petrodollar revenues since 1999. The Gulf region and other OPEC members are once again the major players in global financial and assets markets.

In conclusion, Dr. Al Mulla said: "The Gulf is awash with finance seeking the best home, and that requires an international dimension; the Dubai International Financial Centre with the Dubai Financial Services Authority as a world-class regulator responds to those needs."