Reforms of Qatari banking law to harmonize regulations for Islamic banking sector

Transcription

1. IFN SECTOR CORRESPONDENT Reforms of Qatari banking law to harmonize regulations for Islamic banking sector LAW By Dr Nicolas Bremer The Qatar Central Bank (QCB) had announced that it will introduce uniform industry standards to raise professionalism and customer trust in the Qatari Islamic finance industry as early as 2018. While the QCB was slow to follow up on this announcement, we have seen some concretization that proposes promising regulatory reforms over the summer. Interestingly, despite the ongoing diplomatic crisis in the Gulf, some key elements of the regulatory reforms proposed by the QCB appear to mirror legislative amendments that were issued in the UAE earlier this year (for an overview, see IFN Vol 16, Issue 24, page 20). Similar to the most recent amendments of the UAE banking law, the regulatory reforms now announced by the QCB include establishing a Shariah supervisory body overseeing Shariah compliant products and institutions as well as issuing Shariah standards for the industry. Similar efforts have also been made in other Muslim-majority jurisdictions such as Malaysia and Indonesia and go in line with a general trend for the further supervision and standardization of the Islamic finance industry to address controversies over the apathetic conduct of some institutions especially in respect to the certification of Sukuk. Still, since no draft of the forthcoming legislation has thus far been released, we can only speculate what powers and authorities the new Shariah supervisory body will assume. I expect that the QCB will look to other jurisdictions with similar regulatory authorities and their experiences to shape the Qatari Shariah supervisory body. For instance, experiences from regulations concerning the scope of rulings of the Malaysian Shariah Advisory Council (SAC) illustrate the need for a clear and precise regulation of interaction among different governmental branches. © For lack of specific regulations, it was unclear whether Malaysian civil courts were bound by the decisions of the SAC. They were clarified only recently — in April of this year — when Malaysia’s Federal Court passed its verdict in the case of JRI Resources v. Kuwait Finance House (Malaysia). The QCB formally making the Islamic ϔinance market of Qatar subject to AAOIFI standards would be an important step to further harmonize the global Islamic ϔinance industry The Qatari Islamic finance and banking industry generally abides by the standards set by AAOIFI. Therefore, and since AAOIFI has established itself as a key player in furthering the standardization in the Islamic finance industry, it would be much appreciated if the QCB takes this opportunity to formalize the existing practice of observing AAOIFI standards by making it law. 22 This approach was taken by the Central Bank of the UAE in the most recent amendment of the UAE banking regulations, when it picked up on the industry practice of observing AAOIFI standards and obliged Islamic finance institutions to do so. The QCB formally making the Islamic finance market of Qatar — one of the region’s most important financial centers — subject to AAOIFI standards would be an important step to further harmonize the global Islamic finance industry. It also needs to be considered that there are two distinct jurisdictions with separate banking and finance regulations within the State of Qatar: the onshore Qatar and the Qatar Financial Centre (QFC). Since QFC-based businesses are not subject to regulations applicable in onshore Qatar, the QCB will have to clarify whether its new regulations for the Islamic finance sector will be treated differently. Such a uniform approach would, however, go against the purpose of the QFC, which is to establish a financial center with procedures and regulations distinct from those applicable onshore. Still, it is to be expected that even if the new QCB regulations were not binding on QFC-based entities, many of them would comply with the QCB standards on a voluntary basis in the same way the interbank market in Qatar operates. Dr Nicolas Bremer is a partner at Alexander & Partner. He can be contacted at nb@ alexander-partner.com. 4th September 2019