x Abu Dhabi, UAESunday 23 July 2017

Crisis leads to revamp of the rules on UAE markets

Market officials have been rewriting the country's regulatory rule book in the wake of the global financial crisis in an effort to ensure investors, lenders and borrowers are able to do business in as safe an environment as possible.

More than US$100 billion (Dh367bn) was lost from local bourses between the collapse of Lehman Brothers and the euro-zone debt crisis this year. Jumana El Heloueh / Reuters
More than US$100 billion (Dh367bn) was lost from local bourses between the collapse of Lehman Brothers and the euro-zone debt crisis this year. Jumana El Heloueh / Reuters

UAE market officials have been rewriting regulations after the global financial crisis in an effort to ensure that investors, lenders and borrowers are able to do business in as safe an environment as possible.

From plans to limit banks' exposure to government-linked firms to raising the capital requirement of brokerages, the steps have been designed to provide better safeguards for investors, financial institutions and the wider economy against future shocks.

The changes come as global policymakers are scrutinising laws amid renewed uncertainty that is shaking banks and stocks worldwide.

Monday's move to more closely regulate share ownership is the latest step in overhauling outdated legislation in the UAE. Requiring investors to inform the market immediately if they intend to acquire a shareholding of 30 per cent or more in a listed companyshould help to boost confidence in local markets, say analysts.

Markets are in need of a tonic.

More than US$100 billion (Dh367.27bn) was lost from local bourses between the collapse of Lehman Brothers in September 2008 and the euro-zone debt crisis this year, the IMF estimates.

Another goal behind rewriting regulations is helping the UAE to achieve coveted but elusive emerging-market status, as recognised by the index provider MSCI. The exchanges hope the upgrade from frontier-market classification will lure foreign investors.

"Transparency and corporate governance are prerequisites for MSCI, and this move really signals an important development for the maturity of capital markets," said Haissam Arabi, the chief executive at Gulfmena Investments in Dubai.

"The Securities and Commodities Authority [SCA] is being very active and has a sincere intent to develop the fund-management industry and capital markets, and the type of regulations you want to have if you want this market to be open and accessible to foreign investors," Mr Arabi said.

The SCA is also working on a law to improve regulation of mutual funds, short selling and rights issues.

The draft proposals, aimed at improving protections for buyers from misleading investments, are being reworked after industry players suggested changes last year.

Officials hope the rules will kick-start the local asset-management sector, which has yet to catch up with growth in the global industry.

Responsibility for mutual funds was recently transferred to the SCA from the Central Bank.

The Central Bank is also pushing through major changes to the banking industry.

It has given banks until September 30 to comply with rules capping local banks' exposure to government bodies. Under the rules, announced last month, lending to governments and their non-commercial entities will be limited to 100 per cent of a bank's capital and at 25 per cent for lending to individual borrowers.

The move is aimed at bolstering balance sheets of the banks, and safeguarding them from the risk of losses similar to those they faced after Dubai World and several other government-linked firms restructured their debts.

But some of the most significant changes may still be around the corner.

"Further changes in regulations are anticipated," said Arwa Hamdieh, a co-founder of the UAE's recently launched Financial Services Association. "One of them is the move towards a twin-peaks model, which involves moving the UAE to a proven regulatory model.

"We remain proactive in our communications with the regulators and legislators, emphasising on the importance of maintaining a balanced approach in the upcoming regulations, where the interests of the consumers, investors and institutions are taken into consideration," said Ms Hamdieh.

tarnold@thenational.ae

halsayegh@thenational.ae