The Dubai International Financial Centre could be the beginning of a new world marketplace and so must be constructed on a solid base.
“We need to focus on how to build a world-class capital market like a London, New York or Tokyo.” That was the ambitious challenge laid down by Naser Al Nabulsi, CEO of the Dubai International Financial Centre (DIFC) at the recent International Investment Summit in Dubai. The DIFC’s boss points out that between London/Frankfurt and Hong Kong/ Singapore, there are eight time zones without a world-class financial centre. It is now Mr Nabulsi’s job to deliver on that challenge.
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In physical terms, ground has already been broken on construction of The Gate – the first high-rise tower that will form the linchpin of the DIFC, a stone’s throw from Dubai’s premier business address, the Emirates Towers. The Gate is one of up to seven buildings expected to be built in the area, as demand grows.
DIFC framework
Alongside the concrete foundations currently being poured for The Gate, however, an equally substantial legal edifice is taking shape. The Dubai Financial Services Authority (DFSA) is busy drawing up the legal and regulatory framework to the DIFC. Like the Jebel Ali Free Zone and others scattered across Dubai, the DIFC will offer 100% ownership, and 100% tax-free status to any company that chooses to locate there.
It is the DFSA’s job to draw up a code of regulations – modelled on London’s FSA and New York’s FCC – to ensure transparency and good banking practice. Ian Hay Davidson, a London-based banker, who is chairman of the DFSA, says the only significant way in which DFSA rules will differ from its US and UK counterparts will be the absence of consumer protection legislation. As the DIFC will be geared strictly to wholesale clients, not retail investors, consumer law will not feature.
As for Mr Nabulsi, he brings 12 years experience at Merrill Lynch to the job – which he only took on in March. His broad aim is to, “develop the DIFC into one of the main engines of economic expansion in our region”. This means weaving the work of the DFSA into a broader sales and ambassadorial role to attract major foreign players yet to establish a presence in the region.
“We are not seeking to recycle existing business from our neighbours but to create the new opportunities that our region urgently needs,” says Mr Nabulsi.
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According to rough initial forecasts, 100 licensees (all entrants will need an FSA or FCC-approved licence to operate in Dubai) are expected to set up shop in the DIFC in the coming years. Some 80% are expected to be foreign companies, employing an immediate workforce of 5000 employees.
At present, little more in the way of details about the DFSA laws can be revealed, until negotiations are concluded with UAE federal authorities in Dubai.
Legal precedence
Mr Hay Davidson stresses: “Our laws will take precedent over federal laws in the realm of financial services.” Put another way by James Hume, DIFC executive vice-president: “Where we accommodate a law, the existing UAE Central Bank laws will be disapplied in so far as they relate to financial institutions operating out of the DIFC.”
This will include the establishment of a court, and arbitration law to resolve legal disputes on site. Though no office space is yet available, any successful application for a license to bank in Dubai will come with a three-year grandfather clause to ensure rights to occupancy when construction is completed. Both Deutsche Bank and Standard & Chartered are said to want to move their operation into the DIFC. At the same time, there are grumblings in the Dubai financial community about how long the negotiations on the DIFC’s development are taking.
Mr Hay Davidson says a further announcement on DFSA developments is expected in late summer or autumn. “It would be very nice to be in a position make some announcements at the World Bank meeting,” he says.
DIFC’s main activities
Asset management
Regional financial exchange
Reinsurance
Back-office operations (to be shared with Dubai Internet City)
Islamic finance – a growing but still underserviced sector