On Agenda: FNC statute amendment paves way for DIFC law

The draft amendment to the Constitution approved by the Federal National Council this week removes a stumbling block in the finalisation of the law authorising Dubai International Financial Centre (DIFC) to legislate its own rules and regulations.

The Federal National Council amended Article 121 of the Constitution dealing with the legislative jurisdiction of the federal authority to include a new clause providing for, among other things, certain "exceptions to federal legislations and regulations" in the case of financial free zones.

The amendment stipulates that "free financial zones in the country shall be regulated by a federal law specifying the methods of construction and special exceptions by virtue of federal legislation and regulations regarding the activities of these zones". The amendment will now go to the President for his final assent.

According to top DIFC sources, the amendment providing for exceptions will remove the last obstacle for the issuance of the DIFC law, which will govern the rules applicable to banks and financial institutions registered with the financial centre as also its relationship with the federal regulatory bodies including the Central Bank.

The Federal Cabinet had in July this year approved the move to authorise DIFC to put in place its own regime of rules and regulations and to effect the necessary changes in the statute to make this possible.

The President's assent to the plan was, however, subject to review and approval by the Federal National Council of the due procedure to be followed in the issuance of such laws.

The FNC approval comes after intense lobbying and debate for and against the move, which was instrumental in delaying the promulgation of the DIFC law.

When the Cabinet approved the proposal in July, it was widely believed that the new law would be in place in time for the Dubai 2003 annual meetings of the IMF and the World Bank Groups. But that did not happen as the constitutionality of the proposed arrangement came into question.

While one side argued that the move was not sustainable in terms of constitutionality, the other side asserted there was nothing wrong in the move that could militate against the federal authority in the overall context of the constitution.

Also, in view of the big changes that have taken place in various fields, there was need to bring certain amendments to the statute to reflect new realities and situations, they asserted.

As the plan involved the relationship of the DIFC authority as well as entities licensed by it with several federal agencies, ministries and institutions, including courts, consultations had to be undertaken at a number of levels. This also led to the delay in FNC approval for the changes.

It is interesting to note that the announcement by Emirates of its $400 million international bond to finance its future fleet expansion as well as infrastructure development has timed perfectly with the FNC approval of the constitutional amendment.

Emirates announced that the bond issue, to be initially launched on the Luxembourg exchange, would be listed on DIFC's Dubai Regional Exchange as soon as the exchange becomes functional.

The Emirates bond issue itself ends months of intense speculation about the timing and the terms of the bond issue. It is possible that some observers might interpret the bond announcement in a way that would link the delay with the uncertainties in the evolution of DIFC's own legislative and regulatory systems.

The creation of the physical infrastructure for the financial centre as well as the exchange, including the DIFC signature Gate superstructure, is expected to be ready some time in 2005 or late next year.

It is now clear that the regulatory and legislative processes will be completed well before the physical infrastructure is ready. And this should give some comfort to those who are raring for action, of whom there are indeed many.

The writer is a UAE-based journalist.