Federal approval for DIFC

09 July 2004
The Dubai Financial Services Authority (DFSA), battered by three weeks of bad publicity after the dismissal of its two top regulators, launched its campaign to recover international credibility on 6 July with the announcement that Dubai Crown Prince and UAE Defence Minister Sheikh Mohammed bin Rashid al-Maktoum will personally guarantee its independence.

The statement coincided with the announcement that President of the UAE Sheikh Zayed bin Sultan al-Nahyan had issued a decree establishing the Dubai International Financial Centre (DIFC). The decree is the final piece of federal legislation required for the formal establishment of the centre as the country's first financial services free zone.

The DFSA statement said that federal decree number 35 of 2004 had formally established the DIFC. It said the council met Sheikh Mohammed on 29 June in London and received 'his strong affirmation of the independence of the DFSA as the regulator of the financial and ancillary services in the DIFC'.

The DIFC and DFSA were plunged into crisis on 17 June following the dismissal of regulatory council chairman Ian Hay-Davison and DFSA chief executive Philip Thorpe. Controversy surrounding the dismissals centred on the independent status of the regulator and land deals within the project involving DIFC chairman Anis al-Jallaf, who is also chairman of Union Properties. The company has secured two concessions to develop property within the DIFC.

Dubai lawyer Habib al-Mulla was immediately appointed as the new chairman of the council and David King, who was previously managing director for supervision at the DFSA, replaced Thorpe as chief executive. In an exclusive interview with MEED on 6 July (see Interview, page 8), Al-Mulla and King reaffirmed that the authority's independence has been guaranteed by Sheikh Mohammed and that the DFSA is not subordinate to the DIFC authority. The DFSA will be empowered to take a range of measures against firms that breach its rules, including instituting civil actions through the commercial courts, withdrawing or amending licences and imposing fines. The Dubai law incorporating the DIFC, the final step in setting up the project, will be passed shortly.

A consultation process is also under way with the Central Bank of the UAE, which some interpretations of the DIFC mandate suggested would be excluded from regulating the operations of institutions operating in the zone. 'We have already had productive discussions with the UAE central bank, with whom we have a very good relationship, and we will build on these in more detail over the coming weeks,' says King.

An initial plan to make the DFSA entirely independent of the central bank is understood to have been blocked by the governor Nasser Sultan al-Suwaidi. The central bank is expected to have regulatory authority in the DIFC under the terms of the Dubai law.

Bankers say the statements go some way to restoring the credibility of the DIFC and the DFSA, which had been seriously damaged by recent events. King and Al-Mulla declined to explain why Hay Davison and Thorpe were summarily dismissed on 17 June.

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