On Agenda: DIFC moving slowly but steadily

It is better to go for a system that works efficiently, even if its development involves some delay, rather than implement a half-baked plan that will fold up in due course of time. This is how chief executive Naser Nabulsi explains the approach of authorities at the Dubai International Financial Centre.

The pace is not quite to the liking of some in the banking and financial circles, but there is no escaping the fact that the DIFC involves systems and practices that have far-reaching implications and therefore demands a cautious approach.

Discomfort

A major discomfort for the bankers and financial professionals has been the delay in the follow-up on the federal decree that was issued ahead of the annual meetings of the World Bank Group and IMF in Dubai in September.

The decree authorised the DIFC to legislate on issues and activities that fell under its purview as an exclusive free zone for financial entities offering products and services other than local currency banking. It was thought that the final green light had come.

The process entails voluminous work, involving several federal ministries and agencies dealing with law and justice, courts, monetary authorities, bank regulators etc., Nabulsi explains. This is because of the provision that in jurisdictions that come under the DIFC, the laws enacted by the Centre's legislative authority will take precedence over the comparable federal laws.

However, in matters such as money-laundering, DIFC has to work in coordination with the UAE Central Bank which has put in place a comprehensive regime of laws and regulations aimed at combating the menace.

Money-laundering is a key issue for DIFC as it seeks to distance itself from offshore financial centres, many of which are used by money launderers as a conduit and have attracted attention of global regulators.

Similarly, there are some issues involving the jurisdiction of local courts. Although DIFC will have its own mechanism to arbitrate on disputes relating to financial activities, there may be areas where local courts will have a role.

Best practices

At the same time, this has to be done in a way that will not compromise the DIFC's commitment to implement global best practices in terms of regulation and arbitration.

According to Nabulsi, much of these inter-disciplinary tasks have been completed and the follow-up action on the federal decree, including the necessary Cabinet approvals for forwarding it for ratification by President His Highness Sheikh Zayed bin Sultan Al Nahyan, can come any time now.

Similarly, work on the Dubai Regional Exchange, which is a key component of the DIFC, is progressing apace. The scope and the nature of activities at the exchange have gone through some evolutionary process and have now acquired a more concrete shape.

The exchange was initially conceived as an international operation similar to a branch of one of the leading global exchanges such as New York, Nasdaq or LSE and majority-owned by whichever of these was to be partner.

It was, however, decided later that the DIFC would rather have a regional exchange, serving as a gateway for the huge capital resources within the region.

At the same time, partnership with one of these exchanges is still being pursued, although the DIFC exchange is unlikely to be majority-owned by an international entity. According to indications from the DIFC chief executive, four exchanges are in the fray for a role, all of which have entered into a confidentiality agreement with the DIFC. Talks are progressing with all the four, but the final choice is anybody's guess.

As the operational and regulatory issues get thrashed out, work on the 110-acre Financial District that will house the DIFC institutions is on schedule. Some seven or eight floors of the Gate, the structure that will include the offices of the DIFC and symbolise DIFC as the gateway to regional finance, have already been erected.

A realistic target for DIFC to be up and running appears to be 2005. It no doubt is some way off, but the waiting may be worth the while. Anything well-begun, as the saying goes, is half-done.

K. Raveendran is a UAE-based journalist