The financial industry needs a strong enforcer, says the Dubai regulator's chief, who wants to topple the crooks. The policy of naming and shaming is not going to take a back seat yet
A It has been a mixed year so far for Ian Johnston. On one hand, he got the top job at the Dubai Financial Services Authority (DFSA); on the other, his football club, Rangers, has lurched from one financial crisis to another.
"It's been painful,"says the Scot, referring tothe Glaswegian football club, not the DFSA. His progress through the ranks at the regulator has been impressively smooth.
Mr Johnston left his native Glasgow when he was 10 and headed to Australia with his family in one of the regular waves of emigration from Scotland. There he took up a career in financial services as a lawyer, and in 1999 "crossed the divide" when he joined the Australian financial regulator.
After a short stint in Hong Kong, he joined the DFSA in late 2006. "David Knott was the boss back then, and he wanted to bring in people with international experience to help establish our reputation. It was the early days of the DFSA back then," he says.
Last May, Mr Johnston was made chief executive on the departure of Paul Koster. The appointment ensured continuity in DFSA strategy, but Mr Johnston will bring a shift of direction to the role.
"I tend to put more emphasis on enforcement," he says. "I think it's in the interests of the financial services industry to have a regulator who's a strong enforcer."
It's a subtle but important difference. Since its inception in 2004 as the regulator for the Dubai International Financial Centre, the DFSA has been steadily building a body of codified regulation to govern the running of Dubai's financial markets.
Mr Johnston believes that the infrastructure is now in place.
"I think we'll slow down our rate of regulatory reform. The time is right for the market to catch up and take stock of where we are now," he says.
"It's far better to have somebody who goes in and takes firm action, but allows the other parts of the industry to get on with the job. If everybody is infringing, it usually means the policy is wrong," he adds.
Under Mr Koster - aided by Mr Johnston as managing director for policy and legal services - the DFSA was no shrinking violet.
The regulator took action against high-profile individuals and companies, including Barclays Bank; the Damas jewellery retailer; the investment bank Shuaa Capital; and the Dubai financial firm Capital Investment International.
"I think we've proved we are strong enough to go in and take action, even when it's against a group that has powerful local connections or is part of an international giant," says Mr Johnston.
He explains his philosophy for fighting financial breaches with the concept of a "regulatory pyramid". At the broad-based bottom are the "compliers", who will seldom breach the laws or regulations. The task in relation to these people is to "educate, so they know what the law is", he says.
Next, in the middle of the pyramid, are the "opportunists", who may breach the law when they have the opportunity. "For these, you have to monitor them to increase their fear of detection; this is a real deterrent," he says.
Finally, Mr Johnston believes, at the narrow tip of the pyramid there are the "crooks, for want of a better word. There may not be many of them, but they have to be stopped. That is where enforcement comes in," he concludes with a flourish.
Of course, as the scandal over setting of false interest rates by Barclays in the London money markets has shown, financial regulation these days is an international affair.
Regulators in Britain, the United States and Japan all cooperated in the Barclays investigation, and Mr Johnston is acutely aware of this aspect of his profession.
"There is a lot of interest in the DIFC from international institutions, especially from Asia, and we always take a careful approach as to which jurisdictions they come from. We will share information with regulators, for example in China or Hong Kong, before we allow a firm to branch in DIFC," he says.
Likewise, the new DFSA is also responsible for another global battle against financial crime in the shape of money laundering and terrorism funding.
"The regulator's role here is to detect where possible breaches have taken place, and report it to federal UAE authorities. The same applies to sanctions against Iran, which we treat very seriously. But I'm convinced that any serious money launderer would not try to do it via the DIFC," he says.
Naming and shaming is something the DFSA has made a positive policy, and this will continue under Mr Johnston.
"We will always publicise enforcement outcomes, even if we lose the case. But I don't believe in making that information public in the course of an investigation," he says.
He also believes the media have a vital role to play in alerting the public to financial malpractice and abuse, and to educate the public in sound financial management.
Now, if only an enforcer like Mr Johnston had been at the helm of Rangers, it might still be a thriving football club.