MORE THAN THE MONEY
TBY talks to Abdulla Mohammed Al Awar, CEO of the Dubai International Financial Centre Authority (DIFC), on the establishment of the suitable regulatory framework for the sector and the creation of micro-cities.
What is the key role of the Dubai International Financial Centre (DIFC), and how has that role has evolved since it was originally incepted?
The DIFC was created to bridge the gap between the financial centers of London and Hong Kong. This jurisdictional gap is a significant region of about 42 countries spanning a wide geographical scope. However, it also has a lot of potential in terms of wealth in individuals, institutions, and investment companies that are able to invest in new infrastructure and are excited about these opportunities. These factors were in place, but what was missing was a sound international financial center to centralize the wealth and facilitate business, and so the DIFC was established in 2004. In order to be at the level of power of other international centers, we had to get several aspects of the model right; specifically infrastructure, because we cannot simply be a free trade zone. The entire eco-system has to match other leading centers, and that predominantly lies in the soft infrastructure such as laws, regulations, and judicial authority. We have seen growth because of the institutions we covered, in terms of numbers of people working and also companies. Private developments in the free zone are also popping up. We have the majority of major businesses at the center; 21 of the largest 30 banks are with us, eight of the 20 largest asset managers, six out of the top 10 insurers, and six out of the top 10 law firms. We have been able to attract those major players and create jobs and transfer knowledge into the community.
How important was establishing the right regulatory climate within the DIFC?
An extensive amount of time has been spent developing the legal infrastructure, including laws and regulations through discussions with the federal cabinet of the UAE in terms of what type of independence the center could have. The UAE government entrusted the center and provided it with independence by means of applying a common law jurisdiction. This is very appealing for the international financial community because it feels at home with a familiar system, while being closer to its target audience. There are three bodies that govern the DIFC, yet perform independently from each other. On one side there is the DIFC Authority looking after the master plan and strategy of the center. We develop the infrastructure and we govern all non-financial services carried out from the DIFC and provide promotion for the center. The Dubai Financial Services Authority (DFSA) is the financial services regulator, and it licenses financial institutions to carry out business, supervises these financial institutions, and enforces regulations. The third body is the Judicial Authority, DIFC courts, which has independent jurisdiction over civil and commercial matters arising from the center. We also have an Arbitration Centre, DIFC-LCIA, which offers dispute and resolution services and alternatives to the courts.
What was the strategy behind creating a micro-city?
It is 110 acres and there is a concept of a state within a state. First, we talked about how sound and advanced the legal structure had to be. We have ensured that a world-class infrastructure was in place, as well as business-friendly laws. Another major factor, which is common in all major financial centers, is lifestyle. That is quite important for us, and we focused on creating the environment in an all-inclusive manner. The institutions that are operating here and their employees do not feel that this is predominantly just a space or an office park; we added the lifestyle component and it became a jurisdiction of choice. People can live here, enjoying their time after work at the cafes, restaurants, and art galleries. You have to create an environment where people are happy working and it is often the case that large employers often find it difficult to recruit people from abroad because of where they are investing. These places have to offer good choices in terms of schools, healthcare systems, and quality of life. I think that is where Dubai excelled, as everything is integrated; everything is very advanced here and moving at the same pace. When we talk about growth and emerging markets, this is where the focus lies right now.
How important is Dubai as a hub for other emerging markets and what role is the development of the new Silk Route playing?
I think it is quite central; the role Dubai plays between growth markets is a crucial one. Dubai offers unparalleled value to institutions that want to tap into emerging market areas. If you look at the locale of what is between London and Hong Kong, there is Africa, the Middle East, and South Asia, and the trend has been there for the past two years. Even international banks have seen their future is here and are actually reinforcing their presence here whilst they have been more conservative and cutting down elsewhere. These banks understand the future is here, whether it is in infrastructure, financing, trade financing, project financing activities, or other projects in predominantly growth markets. The Chinese banks are following all of their clients into Africa, and banks are talking to us and choosing DIFC as their base because it is the more logical choice for them; South Asia is the same. Connecting Brazil to China via Dubai makes more sense because of the convenience of direct airlines and flights.
How important is NASDAQ Dubai in terms of the development of local capital markets?
Any financial center has to have active, liquid capital markets in place, and I think in that manner NASDAQ Dubai plays in an important part in Dubai's strategy as an international center. But to complement the center, NASDAQ Dubai is also an international exchange because of the international listing requirements, the obligations that have been put in place, and the fact that it is also regulated by the DFSA. International investors appreciate the choice for the international exchange as opposed to local exchanges.
How have you re-aligned your strategy since the financial crisis?
It is ironic because the crisis that happened in 2009 was about the time that we had our fifth anniversary, and we had already undertaken a plan to revise the business strategy of the center. We saw that we had met the initial goal of creating a critical mass, creating awareness, and developing the DIFC's recognition at an international level. The next step was for us to become a more mature financial center by means of scale, because if we were to compete with the likes of London, New York, or Hong Kong, they obviously have an advantage because of their age. When we look at the scale of activity, we see that more assets are being booked and more business is happening. In that respect, we need to focus on building scale, and what that means is that we not only need to focus on acquiring new clients, but we also need to focus on current existing players to expand by means of added business securities and coverage. We have seen a significant amount of organic growth since 2009—not only new companies but existing players also expanding their footprint, adding more functions and people. Now, from a key performance indicator perspective, while that does add to the number of new companies, it also adds in terms of economic value and GDP contribution. That is also now central to our strategy. For example, we have institutions that have made the DIFC their global home; Standard Chartered started small and now has over 700 people with its own building and has moved its CEOs for all regions expect East Asia to Dubai. Bloomberg also established its 10th global office in the DIFC.
© The Business Year - June 2012